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.
William Jackson Chief Emerging Markets Economist
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Latin America Economics Weekly

Central banks and Omicron, Colombia CA risks

The emergence of the Omicron variant presents a key risk to economic recoveries in the region, although the experience from the latest virus wave in the region provides a reason to think it will not result in a permanent hit to output. In the meantime, central banks across the region will remain focussed on tackling high inflation with further rate hikes. Otherwise, data this week showed that Colombia's current account deficit widened even further in Q3 and the recent drop in oil prices will add to the growing external vulnerabilities there.

3 December 2021

Latin America Data Response

Brazil Industrial Production (Oct.)

The surprise 0.6% m/m fall in Brazilian industrial production in October and weakness in the surveys for last month provide early evidence that the contraction in the economy last quarter may be followed by another q/q drop in GDP in Q4.

3 December 2021

Latin America Data Response

Brazil GDP (Q3 2021)

The 0.1% q/q fall in Brazilian GDP in Q3 confirmed that problems in the agricultural and industrial sectors tipped the economy into a technical recession. And with financial conditions tightening, the terms of trade worsening, and the threat from the new Omicron variant, the risks to our GDP growth forecast for next year of 1.3% are skewed firmly to the downside. Copom may temper its hawkish sentiment a bit at its meeting next week, with a 150bp hike (rather than 175bp) now looking more likely.

2 December 2021

More from William Jackson

Latin America Data Response

Brazil GDP (Q2 2021)

Brazil’s GDP contracted by 0.1% q/q in Q2 but, with virus cases falling sharply, it looks like Q3 will be a lot stronger. We doubt that the fall in output last quarter will have much bearing on the central bank, which is clearly focused on tackling above-target inflation.

1 September 2021

Latin America Economics Update

Chile’s central bank stepping on the brakes

The surprise 75bp interest rate hike by Chile’s central bank late on Tuesday (which took the policy rate to 1.50%) underscores policymakers’ concerns about the inflation outlook. Our forecasts for the policy rate had in any case been on the hawkish side, but we have revised up our end-21 forecast to 2.50% (from 1.50%) and our end-22 forecast to 4.00% (from 3.25%).

1 September 2021

Latin America Economics Weekly

Brazil at breaking point, Argentina’s SDRs, Chile pensions

Brazil’s institutional crisis took a turn for the worse this week, and points to an environment in which fiscal risks will grow and the economic reform agenda will be put on the backburner. Elsewhere, a proposed fourth pension withdrawal bill in Chile would turbocharge the economic recovery, but adds to reasons to expect aggressive monetary tightening and presents longer-term public debt risks. Finally, while the IMF’s SDR allocation has given policymakers in Argentina some breathing space, they appear no closer to securing a new deal with the Fund.

27 August 2021
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