Latin America

Mexico

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

Mexico Industrial Production (Nov.)

The disappointing 0.1% m/m fall in Mexican industrial production in November raises the chances that the economy slipped into a recession last quarter. And while auto production looks to have rebounded strongly in December, the supply disruptions may continue to keep industry weak in Q1.

11 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.

Brazil & Mexico Mid-Month CPI (Dec.)

The fall in Brazilian inflation, to 10.4% y/y, in mid-December is likely to be followed by further declines in the coming months. Inflation in Mexico edged up in the same period, to 7.45% y/y, but we also expect it to drop back early next year. Nonetheless, we think that central banks in both countries will maintain their current pace of tightening with rate hikes of 150bp and 50bp respectively in February.

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.

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 –

Banxico starting to act tough on inflation

Banxico added to this week’s global central banking bonanza with a surprise 50bp hike, to 5.50%, and the widespread hawkish shift on the Board suggests that policymakers will act more aggressively to tame above-target inflation. We now expect a further 200bp of hikes, to 7.50%, next year (previous 6.00%).

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