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Latest pandemic wave hits the region hard

After showing the rest of the world what a strong recovery looks like during 2020, mid-market businesses in Latin America have lost some momentum in the first half of 2021. Grant Thornton’s Global business pulse, the leading index which tracks the overall health of mid-market companies, has improved by just 2pts for the region in H1 2021.

Latin America index over time


Nicolas Cichevski.png“It’s been a tough half-year for the Latin American economies. Most countries were hit by another wave of Coronavirus during March and April amid a vaccination campaign that started later and slower than in the advanced economies. Typically characterized by higher levels of informality and lower levels of education, working from home was relatively more difficult and this had a greater impact on economies,” comments Nicolas Cichevski Sola, business consulting manager at Grant Thornton Uruguay.

The situation has been normalising in recent weeks as vaccination levels have increased – due somewhat to the US’s increasing delivery of vaccines to the region.[i] Whatever the impetus, an increasingly vaccinated population bodes well for the economies going forward. Indeed, the IMF has recently raised its forecasts for GDP in Latin America and the Caribbean by 1.2 percentage points (pp), and now expects GDP growth of 5.8% this year, supported by the performance of Brazil and Mexico.[ii]

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Despite the hit, Latin America is still the healthiest region

Both of these countries enjoy a high standing in our overall index (5th for Brazil and 8th for Mexico), and the region still manages a strong index score in H1 2021 of 5.5. This is 5pts higher than the global average and the healthiest of any major region monitored by the Global business pulse.

Global business pulse
Global business pulse
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Stronger commodity prices have certainly helped businesses during the period, not only metals but also food. “Higher commodity prices were and are still the great hope for Latin American economies. Many countries are already benefiting from this. Mexico less so, but they benefited from the recovery in the US and the fiscal stimulus in the north,” says Nicolas.

The mid-market in the region certainly believes in export opportunities. These rose 6pp to record highs in H1 2021, with 44% of all mid-market companies expecting to increase exports in the next 12 months. Growth expectations in Mexico were particularly strong (up 15pp). Brazil also recorded a modest increase (5pp). Argentina, on the other hand, recorded a significant decrease of 14pp this wave.

Grant Thornton has commented in the past about what the new US administration will mean for trade in the region, particularly for nearby Central American countries. While US trade policies may be much the same, the dramatic recovery seen in the US is creating more opportunities, particularly in those countries – like Mexico – that are geographically close. Our new data highlighting prioritised international destinations clearly shows that the US is the country where Latin America companies expect to see the highest revenue growth in the coming year.

Latin American business health rebounds to pre-pandemic levels
Latin American business health rebounds to pre-pandemic levels
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scott-farber.pngScott Farber, network capabilities team regional head for the Americas at Grant Thornton International Ltd., says the export opportunities into the US aren’t limited to goods and also include services. He has recently witnessed the recruitment of technology experts in Argentina by one US company in search of skills. “I think we are going to see many more US companies engaging Latin American workers directly or moving back-office functions into shared service centres in low-cost countries.”

The importance of accessing skills abroad is highlighted by the fact that 68% of North American companies now cite availability of skilled workers as a constraint to growth.

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Growth expectations brighten outlook for businesses

The modest rise in the index in H1 2021 is entirely the result of an improved outlook, which has risen 4pts to 58. Unusually this has been led entirely by higher business growth expectations and investment intentions. Economic optimism remains unchanged, with just 59% of mid-market companies feeling confident about their economies. This is below the global average of 69% and reflects the significant challenges still facing the region.

Contrary to global trends, businesses restrictions remain largely unchanged at -46.8. The fact that barriers to growth haven’t worsened should support further recovery going forward. Concerns about the economy are also evident here, with marginally more Latam companies now seeing uncertainty as a constraint to their businesses.

While the immediate economic concerns are related to the pandemic and the structural challenges that exist in specific countries, there are additional threats on the horizon. Two notable threats are the need for fiscal consolidation, to reduce government deficits and manage debt, and rising interest rates. Nicolas explains: “Fiscal consolidation will be here sometime soon, probably 2022. And that will lead to pressures in certain countries. Politicians will need to balance fiscal consolidation against the risk of further inequality and social unrest. Earlier this year, we had a preview of that in Colombia.”

The hope that the two tonics of high commodity prices and low interest rates would continue to support the economies of Latin American countries and reduce the need for more extreme fiscal consolidation is coming under increased pressure. We have given warning recently on the risks of inflation globally and it is likely that interest rate rises will occur, with speculation that Brazil will raise rates by 100 basis points, the highest rise in nearly 20 years.[iii]

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Business growth expectations build higher

Encouragingly, business conditions continued to power upwards during H1 2021. This was specifically supported by higher revenue and profit expectations which are up 5pp and 2pp respectively. Revenue expectations are particularly strong in Brazil, where 79% of the mid-market now expect to see increases in the next 12 months, the highest of any country monitored.

While the rise in investment intentions is less dramatic, it is still encouraging to see this tick higher. In line with global trends, Latin American businesses are prioritising investments in areas related to productivity, with 63% expecting to increase investment in technology in the next 12 months, 59% in staff skills and 56% in R&D.

Robert Hannah.pngRobert Hannah, leader of the international business support function at Grant Thornton International Ltd stresses the importance of productivity in helping to manage the risk of inflation. See the latest global index article to read more.

It is also encouraging to see employment intentions among mid-market companies rising 9pp to a series record high, with 62% of the mid-market expecting to increase their staff numbers in the next 12 months. These are particularly high in Brazil, where the jobs market is looking to recover from near record levels of unemployment. This reflects the stronger growth expectations, with an impressive 77% of mid-market companies looking to increase employment in the short term.[iv]

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Concerns about shortages of orders subside

Adding confidence to the buoyant growth expectations are lower concerns about shortage of orders. The percentage of businesses identifying this as a barrier to growth has fallen 5pp to just 40% in H1 2021. This is the lowest level of any region monitored in our research and will certainly be linked to the opportunities that businesses are seeing in export markets.

This strength compensates for the weaknesses seen in both supply constraints and uncertainty, which has fallen back by 2pts each. Most of the factors that feed into supply constraints, such as staff shortage, have deteriorated by around 1-3pp in H1 2021. These collectively contribute to the threat of inflationary pressures and will need to be watched closely in future waves of research.

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Regional highlights


ASEAN businesses are cautiously optimistic, but COVID-19 concerns dominate

Read more Map of ASEAN region image

Asia Pacific

China’s resilience powers Asia Pacific region

Read more Map of Asia Pacific area

European Union (EU)

European businesses are upbeat on successful vaccination rollout

Read more Map of EU area

North America

Outlook smashes previous highs in North America

Read more Map of North America area

    For more on economic developments in the region visit Grant Thornton Uruguay and Grant Thornton Paraguay member firm sites, where you can access country analysis and regional round-ups.

    Take me to the Global business pulse


    i. - US ramps up COVID-19 vaccines delivery to Latin America to counter Chinese influence - 10.07.2021

    ii. - IMF forecasts stronger rebound for Latin American economies - 27.07.2021

    iii. - Brazil raises key interest rate by the most since 2003 - 05.08.2021

    [iv] - Brazil Unemployment Sticks Near Record High as Economy Reopens - 30.07.2021

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