Best of the recovery now over

Easing virus outbreaks and the lifting of restrictions boosted recoveries across Latin America in Q3, but growth looks set to slow sharply over the coming quarters. The re-opening boost will soon fade. Fiscal support is, or will be, unwound while sustained above-target inflation will prompt more monetary tightening than most analysts expect. Meanwhile, supply constraints and falling commodity prices are becoming headwinds to the regional recovery too. So, having beaten expectations in recent months, the pace of the regional recovery is now likely to disappoint. The spectre of more populist policymaking will keep public debt concerns high, particularly in Brazil, putting local financial markets under pressure.
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Latin America Economics Weekly

Central banks and Omicron, Colombia CA risks

The emergence of the Omicron variant presents a key risk to economic recoveries in the region, although the experience from the latest virus wave in the region provides a reason to think it will not result in a permanent hit to output. In the meantime, central banks across the region will remain focussed on tackling high inflation with further rate hikes. Otherwise, data this week showed that Colombia's current account deficit widened even further in Q3 and the recent drop in oil prices will add to the growing external vulnerabilities there.

3 December 2021

Latin America Data Response

Brazil Industrial Production (Oct.)

The surprise 0.6% m/m fall in Brazilian industrial production in October and weakness in the surveys for last month provide early evidence that the contraction in the economy last quarter may be followed by another q/q drop in GDP in Q4.

3 December 2021

Latin America Data Response

Brazil GDP (Q3 2021)

The 0.1% q/q fall in Brazilian GDP in Q3 confirmed that problems in the agricultural and industrial sectors tipped the economy into a technical recession. And with financial conditions tightening, the terms of trade worsening, and the threat from the new Omicron variant, the risks to our GDP growth forecast for next year of 1.3% are skewed firmly to the downside. Copom may temper its hawkish sentiment a bit at its meeting next week, with a 150bp hike (rather than 175bp) now looking more likely.

2 December 2021

More from Latin America Economics Team

Latin America Chart Book

Fiscal risks in the spotlight

The growing likelihood that Brazil’s government will circumvent its spending cap adds to broader signs that austerity is becoming politically difficult to implement across the region. For instance, Ecuadorian President Lasso recently U-turned on a plan to reduce fuel subsidies after facing the threat of protests. That echoes the decision by Colombia’s government to dilute tax hikes after mass demonstrations there earlier this year. With a busy electoral calendar approaching (e.g. in Chile, Colombia and Brazil), it seems unlikely that policymakers will push through the (harsh) austerity needed to reduce public debt risks. This feeds into our view that financial markets will come under further pressure across much of Latin America.

26 October 2021

Latin America Economic Outlook

A slow and bumpy path to recovery

Severe COVID-19 outbreaks across Latin America will put a brake on the region’s economic recovery in Q2. While we’re more optimistic than most that the rollout of vaccines will boost output later this year and in 2022, we still think that Latin America will emerge from this crisis in worse shape than other EM regions. Central banks will keep monetary policy looser than is currently priced into financial markets.

22 April 2021

Latin America Economics Update

Latin America: Key calls for 2020

To mark the new year, our various teams have published a series of key calls notes setting out what to watch for in 2020. This Update wraps up some of our key views for Latin America.

18 December 2019
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