That’s at least what BofA (Merrill Lynch) says Latin America must hope for in 2012, according to their latest report (“We’re all Europeans now“).

Overall, they do not seem negative on Brazil… but they expect some sort of crash in Argentina and strong growth in Venezuela.

1. Their overview of Brazil:

In 2012 we expect Brazil and Mexico, which represent 70% of LatAm’s GDP at current market prices, to grow 3.4% and 3.0%, respectively. This merits some explanation, as Brazil’s growth has sputtered in 3Q, and our US economists expect sluggish growth in 2012. Two facts support our relatively positive forecast for Brazil. First, fiscal and monetary policy tightening has impacted 2011 growth. By contrast, in the coming months we expect monetary policy to become significantly looser. Second, the minimum wage should increase by about 14% in 2012, bringing with it about a 1.7% of GDP income boost.
2. Their “hard landing” predictions for Argentina:

Argentina is where we expect growth to decelerate the fastest in 2012, from 5.5% in 2011 to 1% in 2012. The combination of tighter monetary and fiscal policies, as well as the weak growth in Brazil, supports this view. However, recent FX controls imposed by the government further dented confidence, in our view, and could lead to an even faster portfolio dollarization in coming months, and to a full-blown crisis.

3. And the winner is… Venezuela??? Who would expect…

Venezuela is the only country where we expect growth to accelerate, from 4.1% in 2011 to 5% in 2012. This is not surprising. With presidential elections in late 2012, we expect the government spending to expand nearly 49.9%. This will likely create significant funding pressures in 2012; even though the government holds assets equivalent to 12.3% of GDP, we expect an issuance of about US$15bn in 2012.
 

4. And the mother of all bubbles must save us all…

LatAm risks: Look more to China than to Europe
 

A mild contraction in Europe would not hurt LatAm significantly, in our view. The financial channel would be more important, in our view. Europe has been an important source of FDI in recent years. In particular, a significant share of LatAm banking assets are owned by European banks; as a result, the transmission mechanism could be slower lending and investment.

We expect a Lehman-type event would freeze financial markets and likely have an adverse impact on LatAm. For example, recently we showed that financial factors are the main external driver of Brazil’s growth. This is not surprising, given the substantial portfolio flows that reached Brazil in recent years.
 

LatAm is closely watching export growth to China. Exports to China have gained share in recent years for all LatAm countries except Colombia and Mexico. According to our commodity strategists, a hard landing in China would impact copper and nickel more adversely than other commodities. In a major crisis, we would expect LatAm growth to contract by at least 0.1% in 2012. The countries most exposed would be those very open to trade, such as Chile and Mexico, or those with weak policies, such as Argentina.

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