Latin America

Chile

Current account risks building in Em. Europe & Lat Am

The shift to current account surpluses in Indonesia and South Africa suggest that these economies may be better placed to weather any fallout from rising US interest rates than in the past. But current account deficits have become an increasing cause for concern in parts of Emerging Europe (Hungary, Poland and Romania) and Latin America (Colombia and Chile). Drop-In: Join Chief Emerging Markets Economist William Jackson and Jason Tuvey, head of our Turkey coverage, shortly after this Thursday’s CBRT meeting for a discussion about Jason’s new report on economic policy-making in Turkey, the impact of the lira’s collapse and brewing macro risks this Thursday 20th January at 09:00 ET/14:00 GMT. Register here.

18 January 2022

Omicron sweeps across the emerging world

The Omicron variant of COVID-19 is causing new virus cases to surge in the emerging world. Many EMs are reporting record daily cases or that new infections are rising sharply. South Africa’s experience offers some hope – cases are now falling sharply there and it looks like the economic fallout was limited. Elsewhere, most EM governments are following South Africa’s playbook by imposing limited (if any) containment measures, although China is a key exception. And given weakness in testing capacity and large informal sectors in most EMs, workplace absenteeism is unlikely to be as economically disruptive as in DMs.

14 January 2022

Latin America: five key calls for 2022

We think that Latin American GDP growth will slow by more than most expect in 2022, while inflation will also drop more a bit more quickly than the consensus anticipates. This feeds into our relatively dovish monetary policy views across the region. Meanwhile, heightened political and/or fiscal risks, alongside falling commodity prices, will cause the region’s currencies to weaken further against the US dollar.

10 January 2022
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Mexico & Chile Consumer Prices (Dec.)

Inflation in Mexico stabilised at 7.4% y/y in December and, with price pressures likely to remain strong, we expect Banxico to deliver another 50bp rate hike, to 6.00%, at its meeting in February. Meanwhile, the further rise in Chilean inflation, to 7.2% y/y last month suggests that the central bank will continue its aggressive tightening cycle with another 125bp hike, to 5.25%, at its next meeting.

Omicron may hinder already weakening recoveries

Recoveries across Latin America have lost momentum in Q4 even though, unlike in other regions such as Europe, new COVID-19 cases generally remain low and containment measures are still light-touch at this stage. The situation could get worse if the Omicron variant takes hold. One reassuring sign is that vaccine coverage continues to improve across much of the region, particularly in Chile and Uruguay which have world-leading booster programmes. But the rollout of third doses has barely got off the ground in the likes of Mexico, Colombia and Peru, suggesting these economies are most vulnerable to a renewed flare-up in virus cases and fresh lockdowns.

Chile’s election: first thoughts on Boric’s victory

Gabriel Boric’s victory in Chile’s presidential election is another sign that the country is moving towards greater state intervention in the economy. A radical shift in policymaking seems unlikely. But the public debt-to-GDP ratio looks set to rise much further under the new government. This, and lingering uncertainty over the new constitution, will probably keep local financial markets under pressure.

Emerging Markets Capital Flows Monitor

Foreign investors have been net sellers of EM assets for much of this year and tighter monetary policy in the US and a stronger dollar suggest that the environment for EMs next year will remain challenging. The good news is that most major EMs should be in a good position to weather any renewed outflows.

2021 in review

For the last Weekly of the year we look back at some our key 2021 forecasts. Our biggest wins were predicting that Brazil’s government would effectively cast aside its spending cap and that Colombia would lose its investment-grade rating. However, we underestimated this year’s surge in inflation and the aggressive monetary policy response across the region. Otherwise, all eyes are on Chile’s presidential election on Sunday between José Antonio Kast and Gabriel Boric, which looks too close to call. Both candidates have moderated their stance in recent weeks suggesting that a radical shift in policymaking seems unlikely, but fiscal risks will linger regardless of who wins.
– This will be the last Economics Weekly for 2021. The next Weekly will be sent on Friday 7th Jan. 2022 –

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