Latin America

Latin America Economics Weekly

Latin America Economics Weekly

Colombian fiscal can-kicking, Brazil electric(ity) shock

Colombia’s government recently outlined plans for more moderate fiscal austerity, but this still looks implausible given the current political backdrop. Lingering fiscal risks will probably keep local financial markets under pressure, and may lead to further sovereign ratings downgrades. Elsewhere, Brazil’s drought has raised the prospect of electricity rationing which, based on the country's experience in 2001, would present a major headwind to output. It would also raise costs for consumers, and may prompt the central bank to pursue an even steeper tightening cycle to curb inflationary pressures.

18 June 2021

Latin America Economics Weekly

Peru turmoil, Chile’s lockdown, hawks & doves

Pedro Castillo’s victory in Peru’s presidential election caused local markets to tumble, but if his more moderate post-election comments are borne out in policymaking, asset prices are likely to recover some lost ground. In Chile, while the latest lockdown has caused the near-term outlook to worsen, we retain a positive view on the economy’s growth prospects. The central bank’s forecasts published this week show that it is of a similar opinion (and that rates will rise this year as a result – in line with our projections). Elsewhere, the news that Mexico’s finance minister will take over as central bank governor next year adds weight to our view that Banxico bank will tolerate higher inflation.

11 June 2021

Latin America Economics Weekly

Peru & Mexico elections, (another) Argentine default?

A victory for left-wing populist Pedro Castillo in Peru’s presidential election on Sunday would probably send local financial markets into a tailspin, but we doubt that investors would have much to cheer about even if his rival Keiko Fujimori wins. Mexicans will also head to the polls this weekend for the midterm elections, and a strong showing for President López Obrador’s coalition could embolden him to pursue more interventionist policies in the second half of his term. Finally, Argentina's government missed a $2.4bn payment to Paris Club creditors this week which is another worrying sign that policymakers still do not have a clear plan about how to manage their debts. This bodes ill for renegotiating their huge $45bn IMF loan repayments which kick in soon.

4 June 2021
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Latin America Economics Weekly

Banxico sets a high bar for hikes, new virus worries

The minutes to Banxico’s latest meeting revealed that Board members are becoming more wary about the outlook for inflation, but we think that there is a high bar for a tightening cycle to begin. Otherwise, new virus cases have once again resumed an upwards trend in the region which presents a risk to economic recoveries. One positive, though, is that vaccines appear to be helping to ease the burden on healthcare systems.

Latin America Economics Weekly

Chile’s constitution shock, Colombia’s downgrade

The surprise results of the vote last weekend to elect members to Chile’s Constitutional Convention points to a much greater likelihood of rises in public spending on welfare and larger budget deficits. Elsewhere, the downgrade by S&P of Colombia’s credit rating to junk status this week reaffirms our concerns about the country’s fiscal position.

Latin America Economics Weekly

Chile votes, Copom’s hawks

Chileans vote this weekend to elect members to a convention tasked with re-writing the constitution which, from an economic perspective, may result in a larger role of the state in the economy, higher public spending and larger budget deficits. But regardless of how exactly the new constitution shapes up, a key point is that recent policies have pushed Chile in this direction anyway. Elsewhere, developments in Brazil this week are likely to have strengthened the hawkish voices at the central bank.

Latin America Economics Weekly

COP drop, commodity price rally to the rescue?

The ongoing protests against tax hikes in Colombia have increased the risks around the fiscal position and we think that local financial markets and the currency will remain on the backfoot in the coming quarters. Otherwise, while the recent broad-based rally in commodity prices will provide a welcome boost to producers throughout Latin America, we doubt that this tailwind will last for much longer.

Latin America Economics Weekly

Colombian protests, vaccine wrap-up

Mass protests against tax hikes in Colombia this week have reduced the chances that reforms will be passed (at least without being watered down), putting the sovereign's investment grade rating on even thinner ice. This also raises the chance that the central bank will adopt a more hawkish stance in the coming months. Otherwise, improved access to the highly-effective Pfizer jab and handouts from the US may lift vaccine rollouts across Latin America, offering a bit of light at the end of the tunnel.

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