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Latin America

Colombia

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

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

Petro vs. Gutiérrez

This week Colombia's Liberal Party offered its backing to market-friendly Federico Gutiérrez – who currently trails left-wing Gustavo Petro in the polls – ahead of next month's presidential election. This decision may offer some solace to investors, although we think that Gutiérrez's plans for fiscal consolidation look ambitious and may be politically difficult to achieve. This suggests that, while public debt risks would be lower than under a Petro presidency, Gutiérrez may struggle to put Colombia's public finances on a sustainable path over the medium term.

29 April 2022
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Food inflation a growing concern

Inflation continues to march higher in Latin America, most recently driven by surging food prices owing to poor domestic weather conditions and rising global agricultural prices. This has led to unrest in Peru, and there is growing political pressure to safeguard consumers through lower taxes, higher subsidies and/or price controls on foodstuffs elsewhere in the region (e.g. Mexico and Chile). Even so, we expect that food (and headline) inflation will remain elevated in the coming months. This feeds into our view that Latin American central banks will raise policy rates further than most analysts expect in this cycle.

High commodity prices won’t lift all boats

The surge in commodity prices will drive stronger regional growth than the consensus expects this year, but not all economies in Latin America will benefit. While Brazil and Colombia will see a terms of trade windfall – we expect GDP growth in both countries to beat consensus expectations in 2022 – major oil importers such as Chile and Peru will lose out. Meanwhile, inflation will be higher across the region and monetary policy tighter than most analysts anticipate over the next 6-12 months.

Commodities boost Lat Am markets, economies less so

High commodity prices caused by the war in Ukraine have driven a rally in Latin American currencies and equities this month, and are causing exports to surge. Weekly trade figures from Brazil and Chile show that exports were up by 25-40% y/y in early March (in dollar terms). But domestic conditions remain challenging. Timely surveys from Brazil show that confidence fell this month, which seems linked to high and rising inflation. Meanwhile, financial conditions have tightened a little further across most of the region which is likely to weigh on credit growth. In short, the region still faces a slow and bumpy recovery.

New forecasts for Lat Am inflation & rates

We estimate that the impact of higher fuel, food and potentially goods prices triggered by the war in Ukraine will add roughly 1.0%-pt to headline inflation rates across major Latin American economies this year. One key lesson from the past year is that central banks will tighten aggressively in the face of growing inflation risks and, as a result, we’ve added 75-200bp to our policy rate forecasts in the region.

Surging commodity prices & Argentine subsidies

The recent surge in commodity prices has given a boost to most Latin American currencies and it is generally seen as good news for the region. But not all economies will benefit. Chile's external vulnerabilities are becoming even more concerning. And it will be difficult for Argentina's government to comply with its freshly-agreed IMF deal which, puzzlingly, outlines a plan to cut energy subsidies while also reducing inflation.
Drop-In (8 March, 10:00 EST/15:00 GMT): We’re discussing Russian energy imports and Europe’s energy needs in this special 20-minute briefing on one of the big sticking points in the western response to the war in Ukraine. Register here.

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