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
Olivia Cross Assistant Economist
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Latin America Economics Weekly

What does FinMin Marcel mean for Chile?

President-elect Boric’s announcement today that (now outgoing) Governor of the Central Bank, Mario Marcel, will be Chile’s next Finance Minister is a clear signal that his government will pursue prudent fiscal policy. While the news is going down well with investors, we think that lingering political, fiscal and external risks will ultimately make it difficult for the peso to keep hold of its recent gains. We expect that the currency will weaken by 5-10% against the US dollar by year-end.

21 January 2022

Latin America Economic Outlook

Falling to the back of the pack

The regional recovery will lag further behind others in the emerging world in the coming years. The Omicron-led surge in virus cases presents a risk to growth in the near term, but we suspect that the economic hit will be small. Larger drags will come from the unwinding of fiscal support and further monetary tightening in response to high inflation. Our rate forecasts are generally more hawkish than the consensus. Falling commodity prices will also weigh on growth in the region, and will cause current account balances to deteriorate, with external positions in Chile and Colombia looking increasing shaky. Lingering fiscal and political risks will keep local financial markets under pressure in much of Latin America, particularly ahead of elections in Brazil and Colombia this year.

20 January 2022

Latin America Economics Weekly

Closer look at Lula, auto sector U-turn?

There have been some recent clues that Brazil’s former left-wing president Lula, the current favourite to win October’s election, may not be as radical as some fear. But there is still a clear risk that he would backslide on key economic reforms. Otherwise, the encouraging recoveries in auto production in Brazil and Mexico tallies with broader evidence that global goods shortages began to ease towards the end of 2021. Unfortunately, the recent surge in Omicron cases globally risks putting a spanner in the works as supply chains may face renewed disruption.

14 January 2022

More from Olivia Cross

Latin America Economics Weekly

Chilean external imbalances, Peronists humbled

While much of the focus in Chile has centred on Sunday's general election, one story which may have flown under the radar is that external vulnerabilities are building. Data this week showed that the current account deficit blew out in Q3 on the back of surging imports, adding to the evidence that the economy is overheating. This leaves the Chilean peso vulnerable to a tightening of external financial conditions. Elsewhere, following a poor performance in the midterm elections, Argentina's government appears to be turning towards more orthodox economic policies.

19 November 2021

Latin America Economics Update

A fresh look at fiscal positions in Latin America

Fiscal balances have generally improved across Latin America this year (barring Chile and Colombia) but we think that governments in most major economies will struggle to implement the substantial austerity needed to stabilise public debt-to-GDP ratios. Lingering fiscal and debt risks will probably keep government bond yields high and currencies under pressure in the region, particularly in Brazil.

17 November 2021

Latin America Data Response

Mexico Consumer Prices (Oct.)

The rise in inflation in Mexico to 6.2% y/y in October paves the way for another rate hike at the central bank’s meeting on Thursday. However, the surprise fall in GDP in Q3 will probably keep the pace of tightening gradual. We expect a 25bp hike, to 5.00%.

9 November 2021
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