Latin America’s tentative economic recovery from the coronavirus-related recession faces increasing doubts over gigantic budget gaps and dwindling investor confidence, a Reuters poll showed on Tuesday. The region was particularly hard hit by the pandemic, with Brazil, Argentina, Colombia, Peru, and Mexico ranking among the top 10 countries by total cases and also reporting very steep cumulative death figures. Brazil and Mexico have now flattened their COVID-19 curves, and their economies are giving some signs of life too, as activity in Brazil picks up faster than previously expected and its northern peer bottoms out. But the Brazilian turnaround is fueled by a massive spending push that is beginning to stir investor anxiety. Business sentiment also remains fragile in Mexico for its adoption of the opposite strategy, a rigid policy framework. Concerns about the future of the so-called fiscal ceiling, the cornerstone of President Jair Bolsonaro’s economic program, have hurt Brazil’s markets due to confusion over how a newly proposed welfare scheme would be funded. “The expenditure ceiling will continue to be threatened if there is no willingness to alter mandatory expenditures and/or reallocate existing social benefits,” XP Investimentos analysts wrote in their last monthly report. “Political pressure will continue, both for a new social program and for increased investments… This uncertainty may curb the performance of the Brazilian economy and financial assets in the coming quarters.” Brazil’s economy is expected to grow 3.5% next year, according to the median estimate of 36 economists, the same prediction as in a July poll. But the contraction expected for this year has softened to -5.1% from -6.4%. Analysts still expect Brazil’s primary deficit to shrink to 3.7% of gross domestic product in 2021, in line with official vows to gradually readjust the budget from 8.5% currently. However, the return to austerity would be coupled with an average unemployment rate of 14.1% by economists’ calculations – an unpalatable outcome that Bolsonaro will likely try to avoid before the general vote of 2022, when he may seek re-election. CONFIDENCE WANING Contrary to the relatively hopeful view on Brazil, economic sentiment keeps waning in Mexico, while Argentina is in the middle of a confidence crisis that could anticipate more harshness ahead. The outlook for Mexico’s growth next year was upgraded to 3.5% from 3.0% in July, but the median forecast for this year’s recession deteriorated to -9.9% from -9.0%, a big change indicating the expected recovery may be weaker. “Mexico’s economy is at risk of underperforming in 2021 due to elevated uncertainty about the U.S. election in November and the pandemic’s trajectory,” Elijah Oliveros-Rosen, Latin America senior economist at S&P Global Ratings, said. “Additionally, if Mexico doesn’t find a solution for the decline of investment in the country, economic growth could stay low for many years.” This month, officials launched their first initiative aimed at reversing the trend. In an effort led by Mexico’s President Andres Manuel Lopez Obrador to repair rocky relations with business leaders and lift the struggling economy, his government presented an almost $14 billion infrastructure investment plan. Still, the program, which focuses energy outlays on the refining business of Petroleos Mexicanos (Pemex), does not appear to include major new oil exploration and production investments, despite the company’s diminishing crude output. An example of the kind of decay that the region wants to steer clear of is Argentina, where GDP is expected to collapse 11.8% this year and then grow just 4.9%, a goal that is already looking too optimistic. The main threat is chronic inflation, which is accelerating even amid depressed pandemic conditions and pointing at rates above 40% for 2021 and beyond in economist spreadsheets that normally underestimate the problem, meaning it could get worse. Lacking any sound plans for the economy, the Peronist government made some policy missteps with moves to tighten heavy state intervention that further alienated the private sector and stoked currency instability. Fighting speculation it will eventually be forced to devalue the official exchange rate, the government is taking extreme measures to restrict access to scarce central bank reserves, under growing scrutiny of the International Monetary Fund.