Sluggish growth but stubborn inflation

Tight policy and deteriorating terms of trade will keep growth across Latin America subdued and we think that the region will underperform other parts of the emerging world – as well as consensus expectations – over the next couple of years. Despite weak growth, inflation will remain stuck above central banks’ targets. So monetary easing will be slow (or in Brazil’s case in reverse) and rates are likely to be higher than most expect. Public finance risks will continue to build as fiscal consolidation efforts fail to prevent debt ratios from rising. For most countries, this is a slow-burning issue but in Argentina, it still looks like another debt restructuring will be required in the coming years.