January-March 2013

Macro and industry trends

The economy of South America has continued to improve its overall performance, with strong support from domestic demand and high commodity prices. The faster pace of China’s foreign demand and resilience in the United States have also supported this trend. Sustained growth and ample global liquidity continue to generate capital inflows into the region.

With respect to the different currencies, the Venezuelan Bolivar Fuerte was devalued in February, pushing the US dollar up from 4.3 to 6.3 bolivars. Apart from this case and the Argentinean peso, which has devaluated against the euro, the rest of the currencies in the region gained in general year-on-year, in terms of both fixed and average rates. This has had a positive impact on the Group’s financial statements. Unless indicated otherwise, all comments below on percentage changes refer to constant exchange rates, with the aim of providing a better understanding of the performance of the business in South America.

The financial system in the area remains sound. The loan book continues to grow at a fast pace, boosted by economic policies focused on encouraging domestic activity and the structural changes observed in recent years (that support sustainable growth in most countries). Faced with external monetary expansion and the ensuing increase in capital flows, many central banks have chosen to apply macroprudential measures to discourage capital inflows and to control the rise in domestic lending.