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Q3 looking brighter

While the regional economic recovery stuttered in Q2, it appears to be gathering pace in Q3. New COVID-19 cases have dropped back, particularly in Chile and Uruguay suggesting that their rapid vaccination programmes are proving effective. Restrictions have been eased across Latin America which is reflected in the improvement in the latest high-frequency data. Mexico is the key exception to this trend. It is currently in the midst of a Delta-induced third wave, which provides a warning sign to other countries with similarly low vaccination coverage. But, for now, the positive developments in much of Latin America reinforce our view that the near-term economic outlook for the region is not as bad as many think.
William Jackson Chief Emerging Markets Economist
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Latin America Economics Update

Banxico to take its foot off the brakes

Mexico’s central bank (Banxico) hiked interest rates by 75bp, to 8.50%, for a second consecutive meeting yesterday but, amid mounting evidence that the economy is struggling and with inflation close to a peak, we think that the pace of tightening will slow from here. Our forecast is for the policy rate to reach 10.00% by year-end, which is a touch more hawkish than investors anticipate.

12 August 2022

Latin America Data Response

Mexico Industrial Production (Jun.)

Mexico’s industrial sector posted sluggish growth of just 0.1% m/m in June and the data suggest that the first estimate of Q2 GDP growth may be revised down. The backdrop of weakness in the US means that we expect Mexican industrial activity to stay soft over the rest of this year. But that is unlikely to deter Banxico from delivering further monetary tightening, including another 75bp hike, to 8.50%, later today.

11 August 2022

Latin America Data Response

Brazil IPCA (Jul. 2022)

The sharp fall in Brazilian inflation to 10.1% y/y in July from 11.9% y/y in June was mainly a result of tax cuts on energy; inflation in most other price categories remains extremely strong. Even so, at the margin, this data release increases the likelihood that the central bank will keep interest rates unchanged (rather than opt for a final 25bp hike) at its next meeting in September.

9 August 2022

More from William Jackson

Latin America Data Response

Brazil IPCA-15 (Jul. 2021)

The rise in Brazilian inflation to 8.6% y/y in the middle of July means that the headline rate is overshooting the central bank’s latest projections. That’s likely to tip the balance on Copom towards a larger 100bp hike in the Selic rate (to 5.25%) at the next meeting on 4th August.

23 July 2021

Middle East Economic Outlook

A two-speed recovery

Strong COVID-19 vaccine rollouts in most of the Gulf and Morocco mean that remaining virus restrictions should be lifted by the end of this year, providing a boost to recoveries that, in the Gulf, will be turbo-charged by the recent OPEC+ deal to raise oil output. Elsewhere, though, vaccination programmes are progressing more slowly and fresh virus outbreaks will remain a key threat to the outlook. At the same time, many of these economies will suffer as international tourists return only slowly and officials turn back to fiscal consolidation in order to address high public debt-to-GDP ratios.

21 July 2021

Emerging Europe Economic Outlook

Strong recovery, but inflation a lasting concern

Rapid recoveries are underway across the region and GDP should return close to its pre-pandemic path sooner than in most other EM regions. While the spread of highly transmissible virus strains poses the greatest threat to the near-term outlook, high vaccine coverage means that we do not think it will derail the recovery. The economic rebound is likely to use up spare capacity quickly and keep inflation pressures stronger than in other parts of the EM world. Further interest rate hikes lie in store in Russia, Czechia and Hungary in the coming months, with Poland set to join next year.

21 July 2021
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