BRAZIL (Notifix).- The Economic Climate Index (ECI), a quarterly indicator developed in collaboration between the German Ifo Institute and FGV of Brazil, yielded mixed results regarding the status of the 11 Latin American economies analysed. 

Only two countries showed an improved indicator between April and July 2013 surveys – Colombia (from 5.3 to 6.1) and Uruguay (from 4.8 to 5.3) – and one was stable, Bolivia (5.4). All other countries Everyone had a drop in their ECI. The two countries that showed an unfavourable climate in April’s measuring, Argentina and Venezuela, continued in July in that same category, to which are added Brazil and Chile, which in July changed from favourable to unfavourable. In the case of Chile, the ECI was reduced to 4.4 from 6.4 points, and Brazil to 3.8 from 5.6 points.

The average ECI for Latin America decreased to 4.4 in July from 5.2 points in April, the lowest level since July 2012. The predictions of a slowdown in China’s growth and its impact on raw material prices impacted several Latin American countries with a strong dependence on exports of these products, such as Chile and Peru. So it’s not surprising that the worsening economic climate in Asia and particularly in China, is followed by a similar performance in Latin America.

How is the ECI calculated

The ECI is calculated quarterly based on the average of two surveys to economy experts in Latin America that shed the Expectations Indicator (EI) and the Current Situation Indicator (CSI). The ECI, CSI and EI range from 1 to 9 points. For each positive response, 9 points are awarded, to the neutral response 5 points and to unfavourable 1 point. The questionnaire offers multiple choice qualitative responses (is good / bad, should improve / worsen). According to the research criteria, the specific phase of the business cycle in which the country finds itself is determined by a combination of CSI and IE. When the two indicators exceed the average limit of 5 points, the economy is in the expansion phase. When both indicators are bellow 5 points, the phase is recession. The contraction phase occurs when the CSI is greater than 5 and the EI less than 5. And the recovery phase when the IE is above 5 and the CSI less than 5 points.