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Latin America Economics Weekly

Chile’s new constitution, Brazil’s improving finances

Some of the doubts over Chile’s political system have eased after the Constitutional Convention completed a draft of the new charter, but political risks remain high for now, which may keep the peso on the backfoot in the coming months. Elsewhere, while the Brazilian government’s budget deficit has continued to narrow, we don’t think the country’s fiscal troubles are over for good. LatAm Drop-In (26th May, 10:00 ET/15:00 BST): Join our 20-minute briefing about Colombia’s election and other regional political and fiscal risks – including Lula vs Bolsonaro in October. Register here.

20 May 2022

Latin America Data Response

Chile GDP (Q1)

The 0.8% q/q contraction in Chile’s GDP in Q1 suggests the economy is coming back down to earth after a stellar 2021, and there is a growing chance of a recession this year. Meanwhile, the current account deficit widened to a worryingly large 7.3% of GDP, making the economy especially vulnerable to a further tightening of external financial conditions.

18 May 2022

Latin America Economics Update

Colombia’s economy to beat expectations this year

The solid 1.0% q/q rise in Colombia’s GDP in Q1 suggests the economy came through the Omicron virus wave in good shape and, given the recent surge in oil prices, we expect above-consensus growth of 6.0% this year. That said, a possible victory for interventionist Gustavo Petro in the upcoming presidential elections may weigh on investment and growth further ahead. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

17 May 2022

Latin America Economics Weekly

Hikes, hikes, hikes

The hawkish tilt by Mexico’s central bank at its meeting yesterday, when it raised its raised its policy rate by 50bp (to 7.00%), suggests that Banxico may soon shift its tightening cycle into a higher gear. Elsewhere, Peru’s central bank also increased its policy rate by 50bp on Thursday, to 5.00%, and we expect a further 200bp of hikes in this cycle. Finally, the tightening cycle continued in Argentina yesterday with a 200bp rate hike and, with policymakers starting to take inflation targeting more seriously, we think that the central bank will gradually move real rates into positive territory in the coming quarters. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

13 May 2022

Latin America Economics Update

Brazil’s tightening cycle not derailing credit growth

Brazil’s central bank has undertaken the most aggressive tightening cycle of any major economy over the past year, but there has been surprisingly little impact on bank lending. And while we do expect credit growth to weaken, we doubt that it will collapse. Perhaps the bigger risk from the sharp rise in interest rates is that the government’s fiscal challenge will become larger. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

12 May 2022

Latin America Data Response

Brazil IPCA (Apr. 2022)

The jump in Brazilian inflation to 12.1% y/y in April was driven by a broad based increase in price pressures and supports our view that the central bank’s tightening cycle has further to run. We still expect an additional 75bp of hikes in the Selic rate (to 13.50%) over the coming months – markets have shifted this way over the past week. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

11 May 2022

Latin America Data Response

Mexico Consumer Prices (Apr.)

The rise in Mexico’s headline and core inflation in April, to 7.7% y/y and 7.2% y/y respectively, has a bit further to run in the near term. This will prompt Banxico to deliver another 50bp rate hike this week, to 7.00%, and we expect more monetary tightening than the consensus in this cycle. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

9 May 2022

Latin America Economics Weekly

Inflation alarm bells, Amlo seeks price freeze

The rise in inflation to multi-decade highs across much of the region in April is clearly worrying policymakers and, this week, Mexico’s government became the latest to announce measures to cushion the blow to consumers. Mexico’s plan should help to reduce inflation a little, but it will incur a fiscal cost and faces major implementation challenges. In the meantime, the latest inflation developments and comments from central banks support our view that interest rates across the region will be hiked further than most currently expect. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

6 May 2022

Latin America Economics Update

Copom dialling down the tightening cycle

The communications following the Brazilian central bank meeting yesterday, at which the Selic rate was hiked by 100bp (to 12.75%), confirm that the tightening cycle is nearing an end. But even so, with inflation set to remain firmly in double digits over the coming months, we think that the Selic rate will be raised a little further than most expect. We expect another 75bp of hikes in the cycle to 13.50% whereas the market and consensus envisage an additional 50bp of hikes. EM Drop-In (5th May, 10:00 EDT/15:00 BST): Join Shilan Shah for our latest monthly session on the big macro and markets stories in EMs. This month, Shilan and the team will be talking Russian gas, FX weakness and surging food prices. Register now

5 May 2022

Latin America Data Response

Brazil Industrial Production (Mar.)

The 0.3% m/m increase in Brazilian industrial production in March suggests that the sector made a stronger contribution to GDP growth in Q1 than in Q4, and there are signs of further improvement in April. This supports our view that GDP growth this year will be stronger than most anticipate.

3 May 2022

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