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.
Nikhil Sanghani Emerging Markets Economist
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Latin America Chart Book

Some good news on the political front

Political risk will be a major theme once again in Latin America this year, although recent developments have given cause for cautious optimism. Chilean President-elect Boric’s appointment of Mario Marcel, the current Central Bank Governor, as the next Finance Minister signals that his government may pursue prudent fiscal policies. And in Brazil, former left-wing president Lula (the front-runner in the presidential race) may be moderating his stance, having mooted to have asked Geraldo Alckmin, previously Lula’s centre-right rival, to be his running mate. However, there are still lingering risks in the region. Argentina’s government continues to play hardball with the IMF as the clock ticks down to reach a new deal. The make-up of Chile’s new constitution remains uncertain. And fiscal discipline could still waver around elections in Brazil and Colombia. These risks, and the implications for public debt trajectories, will probably put renewed pressure on currencies across Latin America.

25 January 2022

Latin America Data Response

Mexico Bi-Weekly CPI (Jan.)

The fall in Mexico’s inflation to 7.1% y/y in the first two weeks of the year gave the first sign that inflation has peaked and we think that it will continue to trend lower over the coming months. That said, the further rise in core inflation, to 6.1% y/y, will be a concern for the central bank, suggesting that it will deliver another 50bp rate hike, to 6.00%, at its meeting next month.

24 January 2022

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

More from Nikhil Sanghani

Latin America Data Response

Mexico Bi-Weekly CPI (Nov.)

The surge in Mexico’s inflation to 7.05% y/y in the first two weeks of November – the highest since 2001 – was partly a result of unfavourable base effects, but underlying price pressures were also relatively strong. We still think that the central bank will stick to its gradual pace of tightening with another 25bp rate hike, to 5.25%, at its December meeting but the chance of a more aggressive move is increasing.

24 November 2021

Latin America Economics Update

A look ahead to Chile’s election

The frontrunners in Sunday’s presidential election in Chile, Gabriel Boric and José Antonio Kast, hold different views on the desired size of the state in the economy, but both advocate relatively loose fiscal policy. This would help to support economic growth in the near term but could raise concerns about inflation and public debt in the medium term. Alongside lingering uncertainty over the new constitution, these factors are likely to keep Chilean financial markets on the backfoot in the coming quarters.

18 November 2021

Latin America Data Response

Chile GDP (Q3 2021)

The 4.9% q/q surge in Chile’s GDP in Q3 took output not only above its pre-pandemic level but also its pre-crisis trend. The strength of the figures means that we now expect above-consensus growth of 12.0% this year (from 11.0%) and 4.0% next year. With increasing signs that the economy is overheating, the central bank will continue its aggressive tightening cycle in the coming months.

18 November 2021
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