Uncertainty over election cycles in some Latin American countries could limit credit improvements in 2018 even though macroeconomic indicators enhanced corporate credit profiles in the region during the fourth quarter of 2017, according to Fitch Ratings.
"Fundamentals for improving credit profiles are in place across the region," said Jay Djemal, a director at the rating agency. "But our expectations are moderated by market volatility arising from this year's heavy election cycle and uncertainty in Mexico surrounding NAFTA."
The extension of NAFTA renegotiation talks has also raised uncertainty surrounding the final outcome of the deal and its impact on Mexico. Any fundamental change in the agreement would probably affect a wide array of sectors, Fitch added.
Ongoing political instability in Brazil is a major worry for Brazilian corporates, and presidential elections in October will likely generate "intense volatility and uncertainty" to businesses and credit markets, Fitch noted. Even so, the rating agency expects the ratio of downgrades to upgrades in Brazil to slow in 2018, "leaving behind a highly negative trend during the last three years."
For Colombia, the rating agency forecasts economic growth to rise to 2.8% in 2018 from 1.8% in the previous year, but the recovery could be slower than expected due to Colombia's election cycle influencing the business environment during the first half of this year.
Chile's economy is also showing signs of revival after several years of sluggish performance, with business confidence in the country improving after the election of Sebastian Piñera as president.
In Argentina, fast progress has been made on the government's economic reform agenda, including the passage of a key tax overhaul, which should benefit the credit profiles of Argentine corporates, Fitch said.
