Peru: Lessons from Humala’s presidency

Peru’s president-in-waiting Pedro Castillo seems more moderate than many initially feared, which bears a striking resemblance to former leader Ollanta Humala. The latter’s tenure suggests that, provided there are market-friendly appointments to the new cabinet, local financial markets could soon rebound from their post-election slump. However, compared to Mr. Humala’s time in office, there is now a higher risk of looser fiscal policies, which may keep markets on the backfoot over the medium term.
Nikhil Sanghani 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 Nikhil Sanghani

Latin America Data Response

Mexico Consumer Prices (Jun.)

The rise in Mexico’s core inflation to 4.6% y/y in June was largely driven by temporary factors which will gradually unwind. Nonetheless, given Banxico’s recent hawkish shift, and with headline and core inflation set to stay above the 2-4% target range this year, we expect more rate hikes over the coming months.

8 July 2021

Latin America Economics Weekly

Fallen angel and a rising star

Colombia’s second sovereign ratings downgrade to junk status was already largely priced in to local financial markets, but they could come under renewed pressure as public debt risks intensify over the coming months. That could lead to a hawkish shift by the central bank. There is also a risk that Chile’s central bank will begin an earlier tightening cycle than we currently expect given the strength of the incoming activity data, which confirm the economy’s place as the region’s outperformer. Finally, while Brazil’s public debt-to-GDP ratio has been on a downward trajectory of late, we doubt that this trend will last.

2 July 2021

Latin America Economics Weekly

Central banks turning hawkish, virus waves easing

Latin American central banks are becoming increasingly hawkish, not just in Mexico (after yesterday's surprise rate hike), but also in Brazil and Chile. Colombia may soon join this club. While the region appears to be on the brink of a broader tightening cycle, in general we think that the upward revision to investors’ rate expectations has gone too far. Otherwise, virus outbreaks appear to be easing across the region suggesting restrictions may be eased soon, which would boost recoveries in Q3. Brazil is a key exception – virus cases are hitting record highs – although its economy seems to be adapting to this state.

25 June 2021
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