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The sharper-than-expected 2.4% q/q fall in Colombia’s GDP in Q2 was largely due to protest-related disruption in May and masked a strong rebound in output at the end of the quarter. The economic recovery appears to be progressing well so far in Q3, so we …
18th August 2021
BCRP: same Governor, fresh tightening Peru’s central bank (BCRP), under the renewed stewardship of Governor Julio Velarde, fired the starting gun on its tightening cycle yesterday and we think it has much further to run over the next year. There were two …
13th August 2021
Mexico’s central bank hiked interest rates by 25bp, to 4.50%, yesterday but the split vote suggests that the tightening cycle will continue to proceed slowly despite the growing inflation risks. This reinforces our view that the policy rate will continue …
Clouds gathering over Mexican industry The surprise 0.5% m/m fall in Mexico’s industrial production in June was driven by broad-based declines across sectors, including further disruption to auto production. Industry probably continued to struggle in July …
11th August 2021
Rising inflation will add to Copom’s hawkishness The further rise in Brazil’s headline inflation to 9.0% y/y in July will add to the central bank’s concerns over the inflation outlook. We think that its aggressive tightening cycle has much further to run, …
10th August 2021
We expect that most commodity prices will come off the boil, which will weigh on recoveries across Latin America, particularly in Peru and Chile. While the brightening domestic picture will boost overall GDP growth in the very near term, this emerging …
9th August 2021
Above-target inflation to keep Banxico in tightening mode Despite the small fall in Mexico’s headline inflation rate to 5.8% y/y in July, core inflation rose further to 4.7% y/y on the back of higher services inflation. This strong inflation reading will …
Chile’s barnstorming recovery continues This week’s strong activity data from Chile reaffirms our long-held optimism over its economic recovery. Having faced a setback from a severe virus wave in early Q2, the official economic activity index (Imacec) …
6th August 2021
The pandemic appears to be accelerating a political trend towards populism in Latin America. While there is a lot of uncertainty about how this might play out, it generally points towards loose fiscal policy and greater state intervention across the …
5th August 2021
The hawkish statement accompanying yesterday’s 100bp rate hike by the Brazilian central bank (to 5.25%) means that the Selic rate will increase further than we had anticipated. We now expect it to be raised to 7.50% by year-end (previously 6.50%). The …
A weak end to Q2, but Q3 looking better The stagnation in Brazilian industrial production in June suggests that industry made a negative contribution to q/q GDP growth over Q2 as a whole. But with virus cases having fallen sharply, it looks like the …
3rd August 2021
Peru’s President Castillo off to a concerning start The first steps from Peru’s newly-inaugurated President, Pedro Castillo, provide plenty of worrying signs for investors. The president officially took office on Wednesday and his inauguration speech …
30th July 2021
Robust Q2 but recovery to slow from here The re-opening of Mexico’s economy caused GDP growth to accelerate to 1.5% q/q in Q2, and we suspect that this preliminary figure will be revised up. But with new virus cases rising sharply, the economy is likely …
While the regional economic recovery stuttered in Q2, it appears to be gathering pace in Q3. New COVID-19 cases have dropped back, particularly in Chile and Uruguay suggesting that their rapid vaccination programmes are proving effective. Restrictions …
27th July 2021
Mexico: Possible fallout from the third virus wave The third virus wave currently underway in Mexico, driven by the contagious Delta variant, will probably weigh on activity this quarter. But, for now, we don’t think that it will derail the economic …
23rd July 2021
Inflation jump likely to prompt a 100bp hike The rise in Brazilian inflation to 8.6% y/y in the middle of July means that the headline rate is overshooting the central bank’s latest projections. That’s likely to tip the balance on Copom towards a larger …
Above-target inflation to keep Banxico in tightening mode The small fall in Mexico’s headline inflation to 5.8% y/y in the first half of July was mainly due to fuel inflation dropping back, while the core rate remained stubbornly high at 4.6% y/y. The …
22nd July 2021
Overview – Virus outbreaks are easing in much of Latin America which should support activity in the near term. And while vaccination coverage is still weak in most of the region, suggesting there is still a clear risk of further virus waves, economies are …
19th July 2021
Brazil: hiccups on the fiscal front Proposed changes to Brazil’s income tax setup add to the view that fiscal risks will resurface. The plans presented this week aim to cut corporate tax but offset that with an end to exemptions and the introduction of a …
16th July 2021
Chile’s central bank fired the starting gun on a gradual tightening cycle yesterday as it hiked its policy rate by 25bp, to 0.75%. While it signalled that monetary policy will remain accommodative over the next two years, we think that Chile’s strong …
15th July 2021
Industry holding up while auto shortages bite The small 0.1% m/m gain in Mexico’s industrial production in May came despite a concerning 0.7% m/m drop in manufacturing production as shortages continued to hamper the auto sector. While there are signs that …
12th July 2021
Banxico minutes: surprises and hints of more hikes The minutes to Banxico’s June 24 th meeting , where it delivered a surprise 25bp hike, were fairly hawkish and reaffirm our initial view that more tightening is in the pipeline. We now expect a further …
9th July 2021
Rising inflation to prompt rate hikes in Brazil and Chile The further rise in Brazilian inflation, to 8.3% y/y, means Copom will continue to hike when it meets next month. But the data are not quite enough to prompt a shift from 75bp hikes to a larger …
8th July 2021
Strong inflation will keep Banxico in tightening mode The rise in Mexico’s core inflation to 4.6% y/y in June was largely driven by temporary factors which will gradually unwind. Nonetheless, given Banxico’s recent hawkish shift, and with headline and …
Colombia downgrade may prompt earlier hikes As we warned would happen , Colombia is now a ‘fallen angel’. After mass protests against austerity led the government to dilute its fiscal reform plans, yesterday Fitch followed S&P by downgrading Colombia’s …
2nd July 2021
Industry recovered only slowly May, June probably better The 1.4% m/m rise in Brazilian industrial production in May only partially reversed the falls in output in the three preceding months. And while surveys point to a stronger reading in June, the …
Peru’s president-in-waiting Pedro Castillo seems more moderate than many initially feared, which bears a striking resemblance to former leader Ollanta Humala. The latter’s tenure suggests that, provided there are market-friendly appointments to the new …
1st July 2021
Latin America is once again the global epicentre of COVID-19 but, from an economic perspective, the region has built up significant immunity to the virus. Indeed, despite the surge in new virus cases at the start of Q2, the latest activity data show that …
29th June 2021
Central bank hawkishness sweeping the region Latin American central banks are becoming increasingly hawkish, not just in Mexico but also in Brazil and Chile. Colombia may soon join this club. The biggest hawkish shift this week was in Mexico. After a …
25th June 2021
Rise in inflation keeps plenty more tightening on the table The further rise in Brazilian inflation, to 8.1% y/y in the middle of June, keeps Copom on track to increase the Selic rate to 6.50% (from 4.25% now). But we don’t think that the inflation risks …
The surprise 25bp rate hike by Mexico’s central bank (to 4.25%) suggests that its reaction function is less dovish that we had expected, as it is now reacting to quell high inflation. With the headline and core rates set to remain above target over the …
Argentina’s GDP expanded by a stronger-than-expected 2.6% q/q in Q1 and, while the recent third virus wave has dragged down activity in Q2, we are sticking with our above-consensus forecast of 8% growth over 2021 as a whole. One implication is that the …
24th June 2021
Banxico to keep looking through above-target inflation The strength of the Mexican headline and core inflation readings in the first half of June is likely to prompt a more cautious approach by Banxico at its meeting later today. Even so, we suspect that …
Headline Mexican inflation has now peaked and will drop back within Banxico’s 2-4% target range as the earlier spike in fuel inflation unwinds. In contrast, we expect that core inflation will continue to hover at, or just above, this range in the coming …
21st June 2021
Colombia: new fiscal plan but same old problems Colombia’s government recently outlined plans for more moderate fiscal austerity, but this still looks implausible given the current political backdrop. The Medium-Term Fiscal Plan published this week shows …
18th June 2021
The hawkish statement from the Brazilian central bank meeting (at which the Selic rate was raised by 75bp to 4.25%) indicates that policymakers are more confident in the economic recovery but also more worried about energy inflation than we had …
17th June 2021
Chile’s renewed lockdown measures provide further evidence that its rapid vaccination programme has a lot further to run to quash the virus. The good news is that the economy seems resilient to stringent restrictions, and there is evidence that vaccines …
15th June 2021
Peru at a crossroads The victory for left-wing candidate Pedro Castillo in Peru’s presidential election last Sunday caused local markets to tumble. However, if his more moderate post-election comments are borne out by policymaking, history provides …
11th June 2021
A small bump in the road The surprise drop in Mexican industrial production in April may partly be payback for a strong March. And early indicators suggest that industrial activity picked up in May. Moreover, with services sectors recovering, we continue …
Copom to hike by a further 75bp next week The further jump in Brazil’s headline inflation rate last month, to 8.1% y/y, makes a 75bp hike in the Selic rate (to 4.25%) next week certain and Copom will probably signal that another 75bp hike is on the cards …
9th June 2021
Rise in core inflation unlikely to last The rise in Mexican core inflation to its highest rate in over three years in May, at 4.4%, appears mainly to be related to temporary factors. Policymakers at the central bank will probably continue to adopt …
Peru election: fraught with political risks A victory for left-wing populist Pedro Castillo in Peru’s presidential election on Sunday would probably send local financial markets into a tailspin, but we doubt that investors would have much to cheer about …
4th June 2021
The latest data suggest that Brazil’s economy has been much more resilient to the latest virus waves than we had anticipated and, as a result, we’re revising up our GDP growth forecast for this year to 4.5% (previously 3.0%). The brighter economic outlook …
3rd June 2021
Sunday’s midterm elections in Mexico are widely seen as a referendum on President López Obrador’s tenure, and a strong result for his coalition could embolden him to pursue more interventionist policies. This Update outlines five key questions (and …
2nd June 2021
Industry hit in April, but probably turned the corner in May The worse-than-expected 1.3% m/m decline in Brazilian industrial production in April is likely to be followed by a partial recovery last month. That said, the latest surveys suggest that …
Economy showing resilience to virus waves The 1.2% q/q expansion in Brazil’s GDP suggests that the economy held up well during the country’s second virus wave and more timely figures point to a rapid recovery from the more recent third wave. These figures …
1st June 2021
Banxico minutes: cautious but not too concerned The minutes to Banxico’s latest meeting revealed that Board members are becoming more wary about the outlook for inflation. Even so, we think that there is a high bar for a tightening cycle to begin. The …
28th May 2021
Chilean financial assets have been hit hard following the Constitutional Convention election, and this Update outlines three key political risks which could keep local markets under pressure over the coming quarters. These are likely to shape how Chile’s …
27th May 2021
Political risks have intensified in the Andes this month, which could be part of a broader trend throughout the region. In Colombia, the protests against tax reforms have pushed policymakers away from the fiscal austerity measures required to repair the …
26th May 2021
Inflation jump to keep Copom hiking in June The further rise in Brazilian inflation, to 7.3% y/y in the middle of May, can partly be pinned on unfavourable base effects, but there are also signs of a broader increase in goods inflation. While this …
25th May 2021
