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Brazil’s tax reform, Chilean primary elections

Proposed changes to Brazil’s income tax setup, which aim to cut corporate tax but only partly offset that with an end to exemptions and the introduction of a levy on dividends, add to the view that fiscal risks will resurface. Elsewhere, on Sunday there will be primary elections in Chile to decide the presidential nominees for the left-wing Apruebo Dignidad and centre-right Chile Vamos coalitions. While there is still a lot of uncertainty at this stage, one common theme is that there seems to be broad political support for keeping fiscal policy loose.
William Jackson Chief Emerging Markets Economist
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More from Latin America

Latin America Economics Weekly

Chile’s new constitution, Brazil’s improving finances

Some of the doubts over Chile’s political system have eased after the Constitutional Convention completed a draft of the new charter, but political risks remain high for now, which may keep the peso on the backfoot in the coming months. Elsewhere, while the Brazilian government’s budget deficit has continued to narrow, we don’t think the country’s fiscal troubles are over for good. LatAm Drop-In (26th May, 10:00 ET/15:00 BST): Join our 20-minute briefing about Colombia’s election and other regional political and fiscal risks – including Lula vs Bolsonaro in October. Register here.

20 May 2022

Latin America Data Response

Chile GDP (Q1)

The 0.8% q/q contraction in Chile’s GDP in Q1 suggests the economy is coming back down to earth after a stellar 2021, and there is a growing chance of a recession this year. Meanwhile, the current account deficit widened to a worryingly large 7.3% of GDP, making the economy especially vulnerable to a further tightening of external financial conditions.

18 May 2022

Latin America Economics Update

Colombia’s economy to beat expectations this year

The solid 1.0% q/q rise in Colombia’s GDP in Q1 suggests the economy came through the Omicron virus wave in good shape and, given the recent surge in oil prices, we expect above-consensus growth of 6.0% this year. That said, a possible victory for interventionist Gustavo Petro in the upcoming presidential elections may weigh on investment and growth further ahead. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

17 May 2022

More from William Jackson

Emerging Markets Economics Chart Book

Shifting towards rate hikes

Falling virus cases, strong economic recoveries and/or inflation worries prompted several more EM central banks – those of Czechia, Chile, Hungary and Mexico – to tighten monetary policy in the past month, joining Russia and Brazil. And a few others, including Korea and Colombia, are likely to follow suit relatively soon. But it’s not a widespread tightening cycle. Low inflation means that many central banks in Asia in particular are still a long way from hiking. And perhaps most notably, the People’s Bank of China, having removed stimulus since late last year, has signalled with a cut to the reserve requirement ratio that it is now focused on lowering financing costs for indebted firms.

15 July 2021

Emerging Europe Economics Weekly

Hungary’s inflation surprise, Russia & OPEC+

The surprisingly large rise in Hungarian inflation in June to its highest rate in almost nine years suggests that the risks to our interest rate forecast are skewed to the upside. Elsewhere, the discord at the OPEC+ meeting this week has raised the risk that the current deal falls apart. For Russia, a surge in oil production would provide a mechanical boost to GDP growth, but the accompanying slump in oil prices would probably result in less supportive fiscal policy and a sharp drop in the ruble may trigger even more monetary tightening than we currently anticipate.

9 July 2021

Latin America Data Response

Brazil & Chile Consumer Prices (Jun.)

The further rise in Brazilian inflation, to 8.3% y/y, means Copom will continue to hike when it meets next month. But the data are not quite enough to prompt a shift from 75bp hikes to a larger 100bp move. Meanwhile, with Chilean core inflation continuing to run above target and optimism about the economy growing, we now think the central bank will start its tightening cycle when it meets next week.

8 July 2021
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