Latin America

Mexico

Argentina’s PASO surprise, Pemex debt

The loss for Argentina’s ruling Peronists in the open primary (PASO) for mid-term legislative elections in November suggest that the political tides might be shifting and boosted local financial markets. But the country’s public debt problems are likely to re-surface before too long. Meanwhile, the news that Mexico’s government has purchased $7bn of foreign exchange from the central bank appears to be another step towards the state taking greater responsibility for Pemex’s debt problems.

17 September 2021

Is high inflation here to stay in Latin America?

Following a surge in inflation across the region this year, we think that headline rates are at, or close to, a peak in major Latin American economies. But strong underlying price pressures will prevent inflation from falling below central banks’ targets over the next year or so. Monetary tightening cycles therefore have a lot further to run across the region, especially compared to elsewhere in the emerging world.

15 September 2021

EM financial conditions still loose barring LatAm

Our financial conditions indices show that conditions remain loose by historic standards in most EMs. The key exception is Latin America, where conditions have tightened sharply this year due to rising interest rates and fiscal risks. This could pose a headwind to economic recoveries in the region.

13 September 2021
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Brazil’s political crisis, Mexico’s austere budget

It’s been a rollercoaster week in Brazilian politics and financial markets and, while investors have breathed a small sigh of relief in the past day or so, we think that they will be put under further pressure as the 2022 election nears. Elsewhere, Mexico's austere 2022 budget unveiled this week suggests that fiscal policy will continue to do very little to support the economy, which reinforces our view that Mexico's recovery will underperform most of its regional peers.
CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.

Mexico Industrial Production (Jul.)

The stronger-than-expected 1.1% m/m rise in Mexico’s industrial production in July provides some encouragement that the economy fared well despite the onset of a third virus wave earlier this quarter. That said, the latest surveys point to a worse performance in August, while weakening US demand and ongoing global shortages will hold back Mexican industry over the coming months. CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.

The pandemic and EM scarring risks

The pandemic is likely to inflict lasting damage on potential growth in economies in much of Latin America, Africa and South and Southeast Asia, adding to the structural headwinds that they already faced. However, the risk of permanent scarring in many other emerging markets – including much of East Asia and Emerging Europe – is overstated.

Mexico Consumer Prices (Aug.)

The drop in Mexico’s headline inflation rate to 5.6% y/y in August masks a further rise in core inflation, to 4.8% y/y, which will be a concern for the central bank. This suggests that its gradual tightening cycle has further to run; we expect another 25bp rate hike to 4.75% at the next meeting later this month.

9 September 2021

Brazil’s recovery worries, hawks fly in Chile

The disappointing economic data out of Brazil this week has cast some clouds over the economy’s recovery prospects. As it happens, we think that GDP growth will pick up quite strongly in Q3, but we’re increasingly concerned that electricity constraints could put the brakes on the recovery later in the year. Elsewhere, Chile’s central bank became the latest in the region to spring a hawkish surprise and we think the policy rate will be raised further that the central bank’s new guidance implies.

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