Chile GDP, central bank hawks, Brazil’s meteor

This week’s strong activity data from Chile reaffirms our long-held optimism over its economic recovery, and will probably cause the central bank to adopt a more hawkish stance. Other central banks in the region are also heading in this direction, most notably in Brazil but also those in Mexico, Colombia and Peru. Finally, court ordered payments owed by Brazil's government (which Economy Minister Paulo Guedes said will hit the budget like a "meteor") have put attention back onto the country’s fiscal health, and concerns are likely to build ahead of next year’s election.
Nikhil Sanghani Emerging Markets Economist
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Latin America Economics Weekly

New face at Banxico, Chile election wrap-up

The unexpected change in the nomination for Banxico’s next governor, to Victoria Rodríguez from Arturo Herrera, hit investor confidence but we don't think this switch alters the outlook for Banxico’s gradual tightening cycle. Meanwhile, investors initially cheered the result of Chile’s first-round presidential election but with political risks unlikely to fade soon, and copper prices set to fall further, we see little upside in Chilean local markets from here. Drop-In: Why is Asia sitting out the global inflation surge? 09:00 GMT/17:00 HKT, Thursday 2nd December https://event.on24.com/wcc/r/3546145/A9D34EF592141BEFCAC819ADB40359D5?partnerref=report

26 November 2021

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Unpacking the oddities in Mexican GDP

The final estimate of Mexican Q3 GDP data was revised down to a 0.4% q/q fall (original -0.2% q/q), but the breakdown showed the contraction was almost entirely due to an outsourcing law that hit services output. Regardless of this statistical quirk, Mexico’s recovery will remain one of the weakest in the region.

25 November 2021

Latin America Data Response

Brazil IPCA-15 (Nov. 2021)

The Brazilian inflation reading of 10.7% y/y in mid-November (the same as the October full month figure) provides the first sign that inflation is now stabilising. But with the headline rate still far above target and fiscal risks persisting, it looks more likely than not that Copom will raise the Selic rate in a larger 175bp step (to 9.50%) when it meets next month.

25 November 2021

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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

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Worrying signs from Castillo, regional re-opening

The first steps from Peru’s newly-inaugurated President, Pedro Castillo, provide plenty of worrying signs for investors and suggest that local financial markets will remain on the back foot. Meanwhile, with virus numbers coming down across much of the region, most economies are re-opening to varying degrees and near-term economic prospects are brightening. Mexico is the key exception.

30 July 2021

Latin America Economics Weekly

Mexico’s Delta despairs, Bolsonaro’s giveaways

The third virus wave currently underway in Mexico, driven by the contagious Delta variant, will probably weigh on activity this quarter. But, for now, we don’t think that it will derail the economic recovery. Elsewhere, the falling popularity of Brazil’s President Bolsonaro and the spectre of impeachment seems to have bolstered the president’s demands for higher public spending. This could be a running theme in the run-up to next year's election, suggesting that fiscal risks will intensify once again.

23 July 2021
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