Alphacast Highlight - Investment rates in LATAM recovered in 2022
By Milagros Ricchini (mricchini@alphacast.io)
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Having been strongly hit at the onset of the Pandemic, in 2022 the investment rate is recovering throughout the region
The investment rate in Chile is 24% of GDP, the highest and most stable rate in the region. Surprisingly, during 2020 Chile investment was mildly affected in comparative terms, and is now above pre-pandemic levels, even despite recent years' hike in political uncertainty. Over the last year, investment grew 7.4% compared to 5.4% of GDP growth. Analyzing the last 10 years, Chile’s investment dynamics were positive compared to the region, accumulating a 15% growth, but negative compared to developed economies such as the United States, Euro Area, or the United Kingdom.
Peru was strongly hit by Covid but has already recovered its investment rate, positioning as the highest of the region with a level of 26%. In the short run, investment growth is very modest with an annual growth rate of only 1.1% vs GDP’s 3.3%, signaling that investment isn’t nowadays a driver of Peru’s economic activity.
Argentina is an unusual case. The country is showing a record-high investment rate, that is driven not by real investment opportunities but by the booming of imports caused by exchange rate restrictions, taking advantage of the parallel exchange rates premiums. Argentina’s investment rate is exceptionally volatile and vulnerable to the economic cycle, and in the long term, it has variated along a horizontal line, with no upwards tendency.
Mexico’s investment rate has been 5 p.p. below its historical average over the last 5 years, positioning it as one of the lowest rates in the region. Recent dynamics show an increase of 7% YoY, remarkably above the GDP increase of 2%, showing investment is a driver of economic activity growth in the short term. Long-term dynamics, on the other hand, show that over the last decade the country has accumulated a negative change in investment, and it hasn’t even recovered from the Covid hit yet.
This last highlight is shared with Brazil, which has recovered from the pandemic but it shows the worst long-term performance of the region, especially after the 2014 Crisis, still below that year’s investment level.
Colombia was strongly affected by Covid and its investment rate is still 4 p.p. below its historical average and is the lowest in the region. When analyzing its recent dynamics, investment showed an annual growth rate of 9.6%, lower than GDP growth of 12.6% (the highest in the region). It seems that the fall of Colombia’s investment rate isn’t explained by a decrease of investment but by a much faster increase in economic activity. Long-term dynamics show an important expansion of investment, mostly until before the pandemic hit, and has now recovered its pre-pandemic level.
Finally, Uruguay is a nice example of steady-state growth. The investment rate maintains a stable path over the last few years, it was slightly affected by the pandemic and has now recovered but it’s still below 20%, among the lowest rates in the region. In the short term, investment has grown at an annual rate of 8.3%, higher than the 7.7% YoY shown by GDP.
Looking forward, the financial environment remains volatile and interest rates around the world are hiking, affecting investment levels and composition. Political uncertainty is also a risk factor, especially in Latam.
