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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Latin America Economics Weekly

Argentina’s PASO surprise, Pemex debt

The loss for Argentina’s ruling Peronists in the open primary (PASO) for mid-term legislative elections in November suggest that the political tides might be shifting and boosted local financial markets. But the country’s public debt problems are likely to re-surface before too long. Meanwhile, the news that Mexico’s government has purchased $7bn of foreign exchange from the central bank appears to be another step towards the state taking greater responsibility for Pemex’s debt problems.

17 September 2021

Latin America Economics Update

Is high inflation here to stay in Latin America?

Following a surge in inflation across the region this year, we think that headline rates are at, or close to, a peak in major Latin American economies. But strong underlying price pressures will prevent inflation from falling below central banks’ targets over the next year or so. Monetary tightening cycles therefore have a lot further to run across the region, especially compared to elsewhere in the emerging world.

15 September 2021

Latin America Economics Weekly

Brazil’s political crisis, Mexico’s austere budget

It’s been a rollercoaster week in Brazilian politics and financial markets and, while investors have breathed a small sigh of relief in the past day or so, we think that they will be put under further pressure as the 2022 election nears. Elsewhere, Mexico's austere 2022 budget unveiled this week suggests that fiscal policy will continue to do very little to support the economy, which reinforces our view that Mexico's recovery will underperform most of its regional peers.
CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.

10 September 2021

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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