Latin America

Latin America Economics Update

Latin America Economics Update

Brazil: signs of stagflation

The multitude of supply shocks hitting Brazil’s economy are likely to keep inflation at 7-10% well into next year and cause the pace of recovery to slow to a crawl in the next few quarters. Overall, we now expect GDP growth of just 1.3% next year, which sits below the consensus.

14 October 2021

Latin America Economics Update

Chile: front-loaded tightening cycle has further to run

The surprisingly large 125bp rate hike delivered by Chile’s central bank yesterday, to 2.75%, suggests that it will continue to front-load its tightening cycle to clamp down on high inflation. We now expect a further 225bp of hikes in this cycle, to 5.00%, by the end of Q1 2022 (previously 4.00%).

14 October 2021

Latin America Economics Update

Lessons from Brazil’s 2001/02 energy crisis

The threat of energy shortages looms over Brazil once again. The country’s experience with electricity rationing in 2001/02 offers a useful guide about how the situation may pan out. We estimate that this episode knocked about 1%-pt off GDP growth, added roughly 2%-pts to inflation, and caused Copom to become more hawkish. This suggests that the risks to our current growth forecasts clearly lie to the downside, and that the central bank’s aggressive tightening cycle could ramp up.

7 October 2021
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Latin America Economics Update

Five reasons why Mexico’s recovery will disappoint

There are five key headwinds to Mexico’s economy, including high inflation and shortages in the auto sector, which suggest to us that the recovery will disappoint expectations from here. We now forecast below-consensus GDP growth of 6.0% in 2021 and 2.8% in 2022 (previously 6.5% and 3.5%). This feeds into our view that Banxico will end its tightening cycle sooner than investors currently anticipate.

Latin America Economics Update

Brazil: Copom keeping its foot on the brakes

The statement from yesterday’s Brazilian central bank meeting, at which the Selic rate was raised by 100bp (to 6.25%), made clear that Copom is on the warpath to stop inflation expectations rising. With the inflation outlook worsening, we now think that the Selic rate will be raised to 9.00% by early next year (our previous forecast was 7.50%).

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.

Latin America Economics Update

Peru: BCRP stepping up pace of tightening

Yesterday’s larger 50bp rate hike, to 1.00%, delivered by Peru’s central bank (BCRP) suggests it is becoming increasingly concerned about the inflation outlook. With inflation set to stay above the 1-3% target range over the coming quarters, and GDP growth likely to beat expectations, we now think that the policy rate will rise to 2.00% by end-2021 and 3.50% by end-2022 (previously 1.25% and 2.75%).

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.

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