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Slow growth, political risk leads Moody's to negative 2020 outlook for LatAm

Moody's said it has a negative outlook on Latin America and the Caribbean for 2020 due to slow economic growth, fiscal pressures and political volatility in the region.

The rating agency expects average growth in the region for 2020 and 2021 to fall below the levels observed over the past two decades, with heightened political risk and increasing external headwinds serving as significant downside pressures for growth.

Expansion among the region's economies is expected to hit one percentage point less in the next two years compared to the levels seen from 2010 to 2018, Moody's said. Growth among large economies — Argentina, Mexico, Brazil and Chile — will be slower, while the Dominican Republic and Panama will expand the most, according to the rating agency.

Although growth will start to gain pace in 2021, it will remain relatively weak and most countries' real GDP will expand below 3%, Moody's added.

Social tensions will continue to be an important concern for the region's countries, with the likelihood of recurring social pressures limiting authorities' ability to pass measures that, although unpopular, should anchor fiscal consolidation, the rating agency said. The rise of social unrest in the region last year has taken a toll on investment, which has led to lower growth prospects for several countries.

The impact of political disturbances could reverberate through the medium term and weigh on investor confidence and investment, Moody's said. Governments will especially need to make difficult policy choices as they look to maintain a balance between social demands and a sound policymaking framework, the rating agency noted.

Moody's expects 12 of its 16 rated sovereigns to lessen or at least keep their fiscal deficits at current levels. However, the rating agency believes only a few sovereigns will be able to reach debt-stabilizing primary balances this year, with majority of countries not having enough fiscal room to carry out policies that will counter potential shocks.

On the other hand, improved debt structures have led to more sustainable credit risks, the rating agency said, adding that borrowing costs for several countries should lessen given favorable financing conditions in 2020.