Mexico Consumer Prices (Jun.)

The rise in Mexico’s core inflation to 4.6% y/y in June was largely driven by temporary factors which will gradually unwind. Nonetheless, given Banxico’s recent hawkish shift, and with headline and core inflation set to stay above the 2-4% target range this year, we expect more rate hikes over the coming months.
Nikhil Sanghani Emerging Markets Economist
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Latin America Economics Weekly

What does FinMin Marcel mean for Chile?

President-elect Boric’s announcement today that (now outgoing) Governor of the Central Bank, Mario Marcel, will be Chile’s next Finance Minister is a clear signal that his government will pursue prudent fiscal policy. While the news is going down well with investors, we think that lingering political, fiscal and external risks will ultimately make it difficult for the peso to keep hold of its recent gains. We expect that the currency will weaken by 5-10% against the US dollar by year-end.

21 January 2022

Latin America Economic Outlook

Falling to the back of the pack

The regional recovery will lag further behind others in the emerging world in the coming years. The Omicron-led surge in virus cases presents a risk to growth in the near term, but we suspect that the economic hit will be small. Larger drags will come from the unwinding of fiscal support and further monetary tightening in response to high inflation. Our rate forecasts are generally more hawkish than the consensus. Falling commodity prices will also weigh on growth in the region, and will cause current account balances to deteriorate, with external positions in Chile and Colombia looking increasing shaky. Lingering fiscal and political risks will keep local financial markets under pressure in much of Latin America, particularly ahead of elections in Brazil and Colombia this year.

20 January 2022

Latin America Economics Weekly

Closer look at Lula, auto sector U-turn?

There have been some recent clues that Brazil’s former left-wing president Lula, the current favourite to win October’s election, may not be as radical as some fear. But there is still a clear risk that he would backslide on key economic reforms. Otherwise, the encouraging recoveries in auto production in Brazil and Mexico tallies with broader evidence that global goods shortages began to ease towards the end of 2021. Unfortunately, the recent surge in Omicron cases globally risks putting a spanner in the works as supply chains may face renewed disruption.

14 January 2022

More from Nikhil Sanghani

Latin America Economics Weekly

Fallen angel and a rising star

Colombia’s second sovereign ratings downgrade to junk status was already largely priced in to local financial markets, but they could come under renewed pressure as public debt risks intensify over the coming months. That could lead to a hawkish shift by the central bank. There is also a risk that Chile’s central bank will begin an earlier tightening cycle than we currently expect given the strength of the incoming activity data, which confirm the economy’s place as the region’s outperformer. Finally, while Brazil’s public debt-to-GDP ratio has been on a downward trajectory of late, we doubt that this trend will last.

2 July 2021

Latin America Economics Update

Peru: Lessons from Humala’s presidency

Peru’s president-in-waiting Pedro Castillo seems more moderate than many initially feared, which bears a striking resemblance to former leader Ollanta Humala. The latter’s tenure suggests that, provided there are market-friendly appointments to the new cabinet, local financial markets could soon rebound from their post-election slump. However, compared to Mr. Humala’s time in office, there is now a higher risk of looser fiscal policies, which may keep markets on the backfoot over the medium term.

1 July 2021

Latin America Economics Weekly

Central banks turning hawkish, virus waves easing

Latin American central banks are becoming increasingly hawkish, not just in Mexico (after yesterday's surprise rate hike), but also in Brazil and Chile. Colombia may soon join this club. While the region appears to be on the brink of a broader tightening cycle, in general we think that the upward revision to investors’ rate expectations has gone too far. Otherwise, virus outbreaks appear to be easing across the region suggesting restrictions may be eased soon, which would boost recoveries in Q3. Brazil is a key exception – virus cases are hitting record highs – although its economy seems to be adapting to this state.

25 June 2021
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