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Chile GDP (Q1)

The 0.8% q/q contraction in Chile’s GDP in Q1 suggests the economy is coming back down to earth after a stellar 2021, and there is a growing chance of a recession this year. Meanwhile, the current account deficit widened to a worryingly large 7.3% of GDP, making the economy especially vulnerable to a further tightening of external financial conditions.
Nikhil Sanghani Emerging Markets Economist
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Latin America Economics Weekly

Petro reaction, Lula’s plans, hawkish central banks

Gustavo Petro’s win in Colombia’s presidential election has caused tremors in the country’s financial markets. While the appointment of a centrist finance minister could help to settle investors’ nerves, the global backdrop is turning increasingly unfavourable. In Brazil, Lula, the front-runner in the race for the presidency, unveiled policy plans that will, likewise, probably unnerve investors around the election there in October. Finally, the week was marked by further hawkish noises from central banks in the region. We’ve revised up our interest rate profile in Brazil and the upside risks to our interest rate forecast in Mexico are growing.

24 June 2022

Latin America Economics Update

Banxico’s tightening cycle shifts up a gear

The Mexican central bank’s shift to a 75bp interest rate hike yesterday (to 7.75%) and the hawkish language in the accompanying statement make another 75bp move at the next meeting in August a done deal. And the risks to our end-2022 interest rate forecast of 9.50%, which is already higher than most expect, are now skewed to the upside.

24 June 2022

Latin America Economics Update

Copom: revisiting the 2015-16 playbook

The latest Brazilian central bank communications give a strong signal that, when Copom stops hiking interest rates, it will act in a similar way to the end of the last tightening cycle in 2015. The lesson from that period is that rates will be kept high for a long time and, when an easing cycle begins, it will start very slowly. As a result, we have pushed some of the interest rate cuts in our profile from 2023 to 2024. We now expect the Selic rate to end next year at 11.00% (our previous forecast was 8.50%) and are sticking to our end-24 forecast of 7.50% (versus a current Selic rate of 13.25%).

23 June 2022

More from Nikhil Sanghani

Latin America Economics Update

Colombia’s economy to beat expectations this year

The solid 1.0% q/q rise in Colombia’s GDP in Q1 suggests the economy came through the Omicron virus wave in good shape and, given the recent surge in oil prices, we expect above-consensus growth of 6.0% this year. That said, a possible victory for interventionist Gustavo Petro in the upcoming presidential elections may weigh on investment and growth further ahead. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

17 May 2022

Latin America Economics Weekly

Hikes, hikes, hikes

The hawkish tilt by Mexico’s central bank at its meeting yesterday, when it raised its raised its policy rate by 50bp (to 7.00%), suggests that Banxico may soon shift its tightening cycle into a higher gear. Elsewhere, Peru’s central bank also increased its policy rate by 50bp on Thursday, to 5.00%, and we expect a further 200bp of hikes in this cycle. Finally, the tightening cycle continued in Argentina yesterday with a 200bp rate hike and, with policymakers starting to take inflation targeting more seriously, we think that the central bank will gradually move real rates into positive territory in the coming quarters. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

13 May 2022

Latin America Data Response

Mexico Consumer Prices (Apr.)

The rise in Mexico’s headline and core inflation in April, to 7.7% y/y and 7.2% y/y respectively, has a bit further to run in the near term. This will prompt Banxico to deliver another 50bp rate hike this week, to 7.00%, and we expect more monetary tightening than the consensus in this cycle. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

9 May 2022
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