Brazil’s recovery worries, hawks fly in Chile

The disappointing economic data out of Brazil this week has cast some clouds over the economy’s recovery prospects. As it happens, we think that GDP growth will pick up quite strongly in Q3, but we’re increasingly concerned that electricity constraints could put the brakes on the recovery later in the year. Elsewhere, Chile’s central bank became the latest in the region to spring a hawkish surprise and we think the policy rate will be raised further that the central bank’s new guidance implies.
William Jackson Chief Emerging Markets Economist
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Latin America Economics Weekly

Chile’s constitution, Brazil fiscal worries mounting

This week marked the two-year anniversary of the mass protests in Chile which caused a political risk premium to emerge in local financial markets and the currency, and we think that lingering political risks will keep them under pressure for some time. Similarly, we think that hard-hit Brazilian assets will continue to fair poorly from here, with suggestions this week that the government will break the spending cap adding to the evidence that the country's public finances will deteriorate in the coming years.

22 October 2021

Latin America Data Response

Mexico Bi-Weekly CPI (Oct.)

The further rise in Mexico’s core inflation rate to a 12-year high of 5.1% y/y in the first two weeks of October, which contributed to the rise in the headline rate to 6.1% y/y, will add to the growing hawkish sentiment at the central bank. However, given the weakness of the economy, we think the tightening cycle will remain gradual with another 25bp rate hike, to 5.00%, at the next meeting in mid-November.

22 October 2021

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

More from William Jackson

Emerging Europe Data Response

Turkey Consumer Prices (Aug.)

The stronger-than-expected Turkish inflation reading of 19.3% y/y in August doesn’t rule out the start of an easing cycle later this year. However, we now only see scope for an interest rate cut at the final MPC meeting of the year.

3 September 2021

Latin America Data Response

Brazil Industrial Production (Jul.)

The 1.3% m/m fall in Brazilian industrial production in July confirms that the sector continued its weak performance into the start of Q3, and surveys suggest that August will be weak too. That said, with the economy re-opening, stronger growth in services should drive a pick-up in overall GDP growth.

2 September 2021

Latin America Economics Update

Brazil’s drought adds to inflation and fiscal risks

Brazil’s drought is getting worse and the impact on hydropower production and electricity tariffs will result in higher inflation than we’d previously thought. Fiscal risks could also intensify if the government seeks to cushion the blow to households. The introduction of economically-damaging electricity rationing measures is not in our central scenario, but it is a growing risk.

1 September 2021
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