Latin America

Latin America Economics Focus

Latin America Economics Focus

A fresh look at Brazil’s public debt problem

Suggestions that Brazil’s government will raise welfare spending – and circumvent the spending cap in doing so – add to the evidence that there’s little appetite for the long-term fiscal squeeze needed to stabilise the public finances. Taken together with slower growth and higher interest rates, we think that the public debt-to-GDP ratio is likely to be on an upwards trajectory from next year. This feeds into our view that government bond yields will climb higher and that the real will weaken further from here.

20 October 2021

Latin America Economics Focus

The economic fallout from political risks in Lat Am

The pandemic appears to be accelerating a political trend towards populism in Latin America. While there is a lot of uncertainty about how this might play out, it generally points towards loose fiscal policy and greater state intervention across the region. The key economic risks are that this could lead to weaker public finances, lower potential growth and possibly higher inflation over the medium term. The more immediate impact will probably be to keep Latin American financial markets under pressure.

5 August 2021

Latin America Economics Focus

Argentina & the IMF: 22nd time lucky?

We suspect that Argentina’s government and the IMF will thrash out a new deal, the 22nd in their history, but we doubt that this will lead to the sustained turnaround in policymaking that is needed to put public debt onto a sustainable path. The upshot is that, even if there is a fresh IMF arrangement, another Argentine sovereign debt crisis in the second half of this decade seems more likely than not.

7 April 2021
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Latin America Economics Focus

Brazil’s tightening cycle likely to be sharp but short

The Brazilian central bank’s 75bp hike in the Selic rate (to 2.75%) and hawkish statement point to a front-loaded tightening cycle in the coming months. We now expect a further 200bp of hikes (to 4.75%) over the next three meetings. But we think the cycle will draw to a close by the end of Q3 as inflation starts to fall back. Most expect that the central bank will continue to tighten going into 2022.  

Note: Chief Emerging Markets Economist William Jackson and Senior Emerging Markets Economist Jason Tuvey will be discussing the outlook for monetary policy in Brazil, Turkey and the rest of the emerging world today at 14.00 GMT. If you haven’t done so already, register here.

18 March 2021

Latin America Economics Focus

Banxico set to tolerate higher inflation

We think that the Mexican central bank’s (Banxico’s) reaction function will gradually tilt towards tolerating higher inflation. As a result, we think that interest rates in Mexico will stay low for several years, perhaps until 2024, while most analysts and investors expect rate hikes next year.

14 January 2021

Latin America Economics Focus

Will Brazil break the spending cap?

Pressure for loose fiscal policy in Brazil is likely to persist and we think that the spending cap will be cast aside in the coming years. The government is already testing the water with creative accounting to get around spending limits and this is likely to be a sign of things to come. While weaker fiscal discipline is likely to unnerve investors, we don’t think that it would be the disaster for the economy that some fear.

6 October 2020

Latin America Economics Focus

Lasting blow to supply capacity is not inevitable

It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to revert to the path of output they were on before the crisis. Nonetheless, with demand likely to be slow to recover fully, this could still take several years. And there will be several important exceptions to this generally optimistic picture.

Latin America Economics Focus

Coronavirus deepens Argentina’s debt crisis

The effects of the coronavirus will push Argentina’s economy into an even deeper recession and make the government more tempted to unilaterally halt payments on its international bonds. While we think that an amicably negotiated solution to Argentina’s debt crisis might result in recovery rates of 50% on average, an increasingly likely disorderly default could reduce these rates to as low as 30%.

7 April 2020
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