MacroScope

El Niño may not give Brazil much to worry about on food prices

File photo of loaded soybean truck for BRAZIL SOY.

Now that Brazilian food prices are finally settling down, it looks like El Niño will strike back in a couple of months to throw the world’s weather into disarray.

Bad news for Brazil’s Finance Minister, Guido Mantega?

Not necessarily.

It could just as easily be a blessing, economists say. The changes in climate patterns caused by warmer Pacific waters could actually be a boon for Brazilian soy and corn producers while not necessarily disrupting other crops.

It is not clear yet if the El Niño phenomenon will happen this year – the odds are high at about 70 percent, according to the U.S. and Australian weather agencies.

But Brazil’s recent streak of bad luck in its fight against inflation has allowed many to question whether another shock might be brewing, just as the country recovered from a dry spell that sent food prices soaring and raised the threat of energy and water rationing.

Indeed, inflation expectations in neighboring Colombia are already going up on El Niño fears, according to a recent Reuters poll.

For workers, the long run has arrived in Latin America

The outlook for emerging market economies over the next decade looks more challenging as long-term interest rates start to bottom out in the United States. Here is another complicating factor: ageing populations.

That problem is not as serious as in Japan or Europe, of course. Still, investors probably need to cut down their expectations for economic growth in Latin America over the next years, according to a report by BNP Paribas.

The graphic below shows the declining demographic contribution for economic growth in Latin American countries. The trend is particularly bad in Chile, Venezuela and Brazil:

Channels of contagion: How the European crisis is hurting Latin America

If anything positive can be said to have come out of the global financial crisis of 2008-2009, it may be that the theory arguing major economies could “decouple” from one another in times of stress was roundly disproved. Now that Europe is the world’s troublesome epicenter, economists are already on the lookout for how ructions there will reverberate elsewhere.

Luis Oganes and his team of Latin America economists at JP Morgan say Europe’s slowdown is already affecting the region – and may continue to do so for some time. The bank this week downgraded its forecasts for Brazilian economic growth this year to 2.1 percent from 2.9 percent, and it sees Colombia’s expansion softening as well. More broadly, it outlined some key ways in which Latin American economies stand to lose from a prolonged crisis in Europe.

Latin America has exhibited an above-unit beta to growth shocks in the U.S. and the euro area over the past decade; resilient U.S. growth until now had offset some of the pressure coming from lower Euro area growth, but U.S. activity is now weakening too.

APEC Summit looms as US trade pacts lag

The White House could face the embarrassing possibility of President Barack Obama hosting the annual APEC leaders summit in November without managing to win approval of free trade pacts with South Korea, Colombia and Panama.

Administration officials say there is every reason to expect the long-delayed trade deals can still be passed in September, a good two months before Obama welcomes South Korean President Lee Myung-bak and 19 other APEC leaders to Honolulu.

But as yet, Obama has not even submitted the agreements to Congress, saying he first needs an iron-clad guarantee from Republicans in the Senate and House of Representatives that a worker retraining program known as Trade Adjustment Assistance will be passed along with the trade pacts.

from Davos Notebook:

Will Goldman’s new BRICwork stand up?

RTXWLHHJim O'Neill, the Goldman Sachs economist who coined the term BRICs back in 2001, is adding four new countries to the elite club of emerging market economies. But does his new edifice have the same solid foundations?

In future, the BRIC economies of Brazil, Russia, China and India will be merged with those of Mexico, Indonesia, Turkey and South Korea under the banner “growth markets,” O'Neill told the Financial Times.

Hmmm.  Doesn't quite grab you like BRICs, does it? The Guardian helpfully offers an amended branding banner of  "Bric 'n Mitsk" (geddit?). But which ever way you cut it, it's hard to see a flood of investment conferences and funds floating off under the new moniker.