Doing Business to Latin America in 2023

LATAM could once again emerge as the clear winner among emerging markets in 2023 As companies operating in LATAM build contingencies into their 2023 plans, they should continue to weigh global disruptors much more heavily vis-à-vis domestic factors, whether the former stem from a much-faster-than-expected Chinese slowdown, escalation of the war in Ukraine, or disruption to key commodities’ production and supply. When it comes to disruption that could originate in LATAM or be directed at LATAM, our bias is to the upside for the first time in many years. The region already grew faster than expected in 2022, and we have reasons to believe that LATAM could emerge as a clear winner among emerging markets again in 2023. All downside risks are actually self-inflicted political transitions or result from poor policy decisions. The following are the most important events to monitor in LATAM: Brazil removes all fiscal anchors: Our base is that Brazil will relax its current fiscal framework to allow for more government spending, but that new rules will still limit how much spending can increase in a given year. Our downside scenario would be that Lula's government manages to break free from any spending cap. This would lead to a much weaker currency and push Brazil closer to a debt crisis down the line, leading to sharper budget cuts and tax increases already during Lula's term. LATAM concentrates emerging-market (EM) investment: With both the US and Europe careening toward a recession in 2023, potential escalation of the war in Ukraine affecting neighboring countries, China remaining in lockdown, the MENA region suffering from high-inflation and heightened FX volatility, and Russia written off in global investment portfolios, suddenly LATAM feels like a safer investment bet. In this scenario, LATAM could become the top FDI destination, only trailing the US, Europe,...