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All eyes will be on Brazil’s general election on Sunday. Among other things, we’ve written about the implications of the vote for the economy, what lessons to draw from Lula’s previous presidency, and the future of Brazil’s fiscal rules. All of our …
30th September 2022
Central banks in Mexico and Colombia delivered further large interest rates hikes yesterday, of 75bp and 100bp respectively, and the backdrop of strong inflation pressures and tighter external financing conditions means that a bit more tightening lies …
Latin American currencies have come under pressure this month which will put further upward pressure on inflation, but the bigger picture is that headline rates are at, or close to, a peak across the region. Indeed, headline rates in Brazil and Peru are …
27th September 2022
Food and energy drag headline rate down further The fall in inflation in Brazil to a 16-month low of 8.0% y/y in the first half of September confirms that the monetary tightening cycle is over. By the same token, the fact that inflation remains very …
Argentina’s second IMF review This week the IMF announced that a staff-level agreement has been reached with Argentina to release a $3.9bn tranche of the $44bn programme, which will help the government to continue external debt repayments (mainly to the …
23rd September 2022
The improvement in government budget positions across Latin America over the past year or so has been driven in large part by temporary factors and is likely to reverse before long. As things stand, this is not a major concern for public finances in …
22nd September 2022
Stronger inflation & hawkish Fed mean another 75bp hike next week The stronger-than-expected Mexican inflation figure of 8.8% y/y in the first two weeks of September, coming alongside the hawkish Fed decision yesterday, means that we now think Banxico …
The Brazilian central bank’s decision to leave the Selic rate unchanged at 13.75% after 12 consecutive hikes makes it one of the first central banks globally to bring its tightening cycle to an end. Policymakers are likely to turn to interest rate cuts …
The credibility of Brazil’s spending cap – the country’s key fiscal anchor – has been seriously undermined by tweaks and workarounds since the start of the pandemic. And it looks likely that the cap will be weakened further after October’s presidential …
21st September 2022
Colombia: fiscal consolidation vs. inflation The Petro administration’s commitment to address costly energy subsidies is the fiscally responsible thing to do, but it will come at the expense of exacerbating the country’s inflation problem. Fuel …
16th September 2022
Mexico’s 2023 budget proposal suggests that officials intend to stick to their tight policy stance, but the public finances are likely to deteriorate if (as we expect) oil prices fall back and the economy performs worse than officials anticipate. The …
15th September 2022
While Luiz Inácio Lula da Silva (better known simply as Lula), the front-runner in Brazil’s presidential race, has been vague about his policy stance, one common theme from his campaign is nostalgia for his previous presidency of 2003-10. The experience …
14th September 2022
Chile and its constitution: back to square one While the surprisingly strong rejection of Chile’s proposed new constitution in Sunday’s referendum has eased some concerns about a radical shake up of the country’s economic model, the outcome doesn’t put an …
9th September 2022
Inflation falls further, just one more hike likely Brazil’s headline inflation rate fell to a 14-month low of 8.7% y/y in August, but hawkish comments from the central bank this week support our view that there will be one final 25bp interest rate hike …
Industry supported by easing supply constraints Mexico’s industrial sector posted disappointing growth of 0.4% m/m in July as stronger automobile output was partially offset by weakness elsewhere. More timely indicators suggest that, the auto sector …
We think a combination of domestic and external factors will push up risk premia in Brazil over the rest of this year. This informs our forecasts that the real will weaken and the country’s bonds will sell off. Brazil’s financial markets appear to have …
8th September 2022
Inflation rise shortens odds of 75bp hike, but we expect Banxico to opt for 50bp The further rise in Mexico’s headline inflation rate to 8.7% y/y in August will strengthen the case for Banxico to deliver a third consecutive 75bp increase to interest rates …
The Monetary Policy Report released by Chile’s central bank today, following on from its larger-than-expected 100bp rate increase to 10.75% yesterday, suggests that its tightening cycle is drawing to a close. But with inflationary pressures still acute …
7th September 2022
Former President Lula holds a commanding lead in the polls ahead of Brazil’s presidential election on 2 nd October. It seems unlikely that he would govern as radically as his party’s manifesto suggests but, even so, neither of the leading candidates seem …
6th September 2022
Brazil: will the consumer surge last? One of the most striking features in Brazil’s Q2 GDP release this week was the stellar performance of household consumption, which rose by 2.6% q/q – a figure bettered only six times in the GDP series’ …
2nd September 2022
Industry starting Q3 on a better footing The 0.6% m/m rise in Brazilian industrial production in July suggests that, while headwinds facing the economy are growing, it started the third quarter in decent shape. Taken together with the robust Q2 GDP …
Chile’s new constitution, which will be put to the people in a referendum this coming Sunday, would usher in sweeping changes to the country’s current economic model. Even if the constitution is rejected, it is clear that Chile is moving towards a larger …
1st September 2022
Strong H1 to be followed by weakness in H2 The stronger-than-expected 1.2% q/q rise in Brazilian GDP in Q2 has prompted us to revise up our 2022 GDP growth forecast to an above-consensus 2.5% (previously 2.0%). And the likelihood of a final 25bp rate …
The region faces a busy political calendar. Chileans head to the polls on Sunday to vote on a new constitution which would usher in sweeping changes to the country’s current economic model. While the latest polls suggest that the charter will be …
30th August 2022
Current account deficits and the pesos’ divergence Current account figures released this week go a long way to explaining the starkly different performance between the Mexican and the Chilean pesos. Data from Mexico showed that, while the current account …
26th August 2022
The further widening of Chile’s current account deficit in Q2 combined with an increased reliance on portfolio inflows leave the Chilean peso vulnerable to a deterioration in investor risk appetite. We think the peso will remain under pressure and, as a …
24th August 2022
Inflation falling, but interest rates to remain high The further fall in Brazil’s headline inflation rate to 9.6% y/y in the first two weeks of August was mainly due to tax cuts on energy and masks the fact that underlying price pressures remain strong. …
Upward inflation surprise raises threat of another 75bp hike The stronger-than-expected rise in Mexico’s headline inflation rate to 8.6% y/y in the first two weeks of August raises the risk that Banxico pushes through another 75bp interest rate hike at …
Weakness in the US economy over the coming quarters is likely to result in softer (rather than a collapse in) demand for Mexico’s goods exports as supply constraints fade, but the recovery in the tourism sector will probably grind to a halt and capital …
22nd August 2022
Lula & the state banks: déjà vu Brazil’s presidential election campaign officially kicked off this week with heated barbs between the leading candidates. On the economic front, one thing that has stood out is front-runner Lula’s focus on the role of …
19th August 2022
Disappointing Q2 likely followed by recession Chile’s economy merely stagnated in Q2 and the chances are high that it will fall into recession over the second half of the year. Meanwhile, current account risks are continuing to build – with the deficit …
18th August 2022
The robust 1.5% q/q rise in Colombia’s GDP in Q2 suggests that the economy’s recovery will be among the strongest in the region this year. Strong growth, alongside upside inflation surprises and the fragile external position mean that the central bank’s …
17th August 2022
Colombia’s tax reform Colombia’s President Gustavo Petro was inaugurated last weekend and his economic team was quick to make their mark, presenting a new tax bill to congress. The bill seeks to add COP25trn (1.7% of GDP) to government coffers this year, …
12th August 2022
Mexico’s central bank (Banxico) hiked interest rates by 75bp, to 8.50%, for a second consecutive meeting yesterday but, amid mounting evidence that the economy is struggling and with inflation close to a peak, we think that the pace of tightening will …
Industry remains soft Mexico’s industrial sector posted sluggish growth of just 0.1% m/m in June and the data suggest that the first estimate of Q2 GDP growth may be revised down. The backdrop of weakness in the US means that we expect Mexican industrial …
11th August 2022
Inflation fall eases pressure on Copom The sharp fall in Brazilian inflation to 10.1% y/y in July from 11.9% y/y in June was mainly a result of tax cuts on energy; inflation in most other price categories remains extremely strong. Even so, at the margin, …
9th August 2022
Further rise in inflation to prompt another 75bp on Thursday The rise in Mexico’s headline inflation rate to 8.2% y/y in July, coming alongside the stronger-than-expected Q2 GDP figures released in late-July, mean that Banxico is almost certain to hike …
Costing Chile’s new constitution A recent report from Chile’s Centro de Estudios Públicos (CEP) that looks at the fiscal costs implied by the draft new constitution has made a splash this week. It estimates that the total annual cost for the government of …
5th August 2022
The appointment of Sergio Massa as head of Argentina’s newly-created economic “superministry” provides some hope that the government will try to stick to its latest IMF deal. But it will be a major challenge to meet the Fund’s targets. And even if …
The statement to yesterday’s Brazilian central bank meeting, at which the Selic rate was hiked by 50bp to 13.75%, made clear that Copom is more confident that inflation will fall back and also more concerned about the slowing economy. We remain of the …
4th August 2022
Broad based weakness in industry The 0.4% m/m fall in Brazilian industrial production in June, taken together with softer surveys last month, provides further evidence that the economy is losing momentum. GDP growth in the second half of the year is set …
2nd August 2022
Big challenges for Argentina’s new “superminister” President Alberto Fernández announced a major cabinet reshuffle yesterday in an effort to tackle the latest economic crisis. One of the casualties of the reshuffle is Silvina Batakis, who had taken over …
29th July 2022
Another solid quarter, but recovery to struggle from here Provisional GDP figures show that Mexico’s economy grew by a stronger-than-expected 1.0% q/q in Q2 and we have nudged up our forecast for GDP growth this year to 2.3% (from 1.8% previously). Even …
Latin American economies held up well in early part of this year, helped by the surge in commodity prices brought about by the war in Ukraine. But there are signs that activity is now weakening. Timely monthly activity indices fell in m/m terms in five of …
27th July 2022
Inflation has peaked, but will remain high The drop in inflation in Brazil to 11.4% y/y in the first half of July provides the first clear sign that inflation has passed its peak and is now on a downwards path. But even so, with the headline rate far …
26th July 2022
Colombia’s gaping trade deficit Recently released trade data showed that, somewhat surprisingly, Colombia’s trade deficit widened in May. This was driven by two factors. First, having jumped in April due to the surge in global energy prices, exports …
22nd July 2022
Further rise in inflation to prompt another 75bp hike The further rise in Mexico’s headline inflation rate to 8.2% y/y in the first two weeks of July means that Banxico is all but certain to deliver another 75bp hike in interest rates, to 8.50%, at its …
Overview – High energy and agricultural prices helped to cushion Latin American economies over the first half of the year, but the second half will be much more challenging. As growth slows, fiscal concerns are likely to come back to the fore. And in the …
21st July 2022
Brazil’s ‘kamikaze’ social transfers Brazil’s fiscal rules took another blow this week after congress approved a constitutional amendment (the so-called ‘kamikaze’ amendment) that will expand social transfers. Spending will increase by 41bn reais, or 0.4% …
15th July 2022
We expect the Mexican peso to fall further against the US dollar amid mounting external headwinds. As the dollar has appreciated to multi-decade highs against major developed market currencies, such as the euro and the yen, it has also extended its gains …
