Highlights
- The impact of El Niño will boost gas demand in several Latin American countries
- Strike action in Brazil has the potential to create tightness in the country’s gas supply
- LNG exports from Trinidad and Peru are expected to remain under pressure, partly because of weak demand
- A potential US interest rate hike in December is likely to slow upstream investment in Latin America
Economic overview
Improvements in the US economy make it more likely the US Federal Reserve will increase interest rates in December.
The United States’ Federal Open Market Committee will hold its last monetary policy meeting of the year on 15-16 December. The committee refrained from raising rates in October, but Federal Reserve Chair Janet Yellen has said a December hike remains “a live possibility”. Meanwhile, US unemployment edged down to 5% in October – the lowest level since April 2008.
Quarterly and annual year-on-year GDP growth rates
| Q1 2015 | Q2 2015 | Q3 2015 | 2015 | 2016 | 2017 | |
| US | 2.9% | 2.7% | 2.0% | *3.1% | *3.1% | *2.7% |
| Canada | 2.0% | 1.0% | *2.2% | *2.2% | *2.0% | *2.0% |
| Mexico | 2.6% | 2.2% | 2.4% | *3.0% | *3.3% | *3.5% |
| Brazil | -1.6% | -2.6% | *-1% | *-1.0% | *1.0% | *2.3% |
| Argentina | 2.1% | 2.3% | *-0.3% | *-0.3% | *0.1% | *0.3% |
An interest rate increase in December would not be ideal for Latin American countries – many of which have struggling economies. Countries such as Colombia and Venezuela are being affected by persistently low oil prices, and a US interest rate hike would further weigh on oil prices by strengthening the US dollar against key global currencies. The US dollar index, which reflects the strength of the currency against major global pairs, has averaged 98.6 so far in November – its highest level since April 2003.
The Colombian central bank increased its benchmark interest rate by 50 basis points, to 5.25%, at the end of October in an effort to counter unsustainably high inflation. Meanwhile, the Mexican central bank said it may be forced to raise its interest rate if the US Federal Reserve tightens credit in December. In November, the bank narrowed Mexico’s GDP growth forecast range for 2015 to 1.9-2.4% from its previous 1.7-2.5%.