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Industry keeping the recovery going The 1.1% m/m rise in Brazilian industrial production in October confirms that, after what looks to have been a very strong Q3, the economy held up well at the start of Q4. Surveys suggest that this continued into …
2nd December 2020
A fresh rise in COVID-19 cases in Brazil and Mexico threaten to derail their recoveries in late-Q4 and Q1. On the flipside, the near-term outlook is relatively bright in Argentina, Peru and Chile. By the end of Q3, Brazil’s economy was relatively close to …
1st December 2020
Solid current account to support MXN This week’s data dump from Mexico showed a sharp drop in inflation to 3.4% in early November , and a small upward revision to Q3 GDP from the provisional estimate (+12.0% q/q to +12.1% q/q). Perhaps the most …
27th November 2020
The positive news on the efficacy of COVID-19 vaccines offers hope for the region’s economy. As things stand, Chile and, to a lesser extent, Mexico look well placed to benefit given their sizeable pre-orders. Purchases are relatively small in Peru and …
25th November 2020
Fall in Mexican inflation supports the case for a rate cut The fall in Mexican inflation, to 3.4% y/y, in the middle of this month, supports our view that Banxico will cut its policy rate by a further 25bp, which we now expect to happen at next month’s …
24th November 2020
Pension withdrawals 2.0 in Peru and Chile The recent political storm in Peru has calmed after centrist Francisco Sagasti was sworn in as the third President in just over a week. Local financial markets and the sol have reversed their earlier losses. The …
20th November 2020
Argentina’s central bank (BCRA) is running out of FX reserves to prop up the peso and it may soon devalue the currency. Even so, it would take an overhaul of the monetary policy setup, probably under the guise of a new IMF agreement, to prevent a more …
19th November 2020
Small Q2 recovery but outlook remains bright The 5.2% q/q rise in Chile’s GDP in Q3 may seem small relative to the 13.5% q/q drop in Q2. But the recovery was accelerating through the quarter, and we think that output will return to its pre-crisis level …
18th November 2020
Recovery faces large hurdles despite vaccine hopes The 8.7% q/q rebound in Colombia’s GDP in Q3 meant output was still 9% below its pre-virus level by the end of the quarter. Although hopes for a vaccine have brightened the outlook, weak fiscal support …
17th November 2020
Vaccine hopes, but Lat Am will suffer scarring The news of the successful trial of Pfizer’s COVID-19 vaccine has raised hopes that effective vaccines could soon start to be distributed. At this stage, there is a lot of uncertainty. Much will depend on the …
13th November 2020
The communications accompanying the Mexican central bank’s decision to leave its policy rate unchanged at 4.25% suggest that there may still be scope for one more cut in the easing cycle. While it’s touch and go, we think it’s most likely that there will …
12th November 2020
Recovery lost momentum, rate cut likely The Mexican headline industrial production figure for September, which showed that output was flat from August, masks a welcome pick-up in growth in the key manufacturing sector. Even so, it’s clear that the …
11th November 2020
The impeachment of Peru’s president, Martín Vizcarra, has rattled the country’s financial markets and may pave the way for looser (and more populist) fiscal measures in the coming months. Given the country’s strong balance sheet, such policies should have …
Core inflation stabilising, Banxico still likely to cut Mexican headline inflation inched up further, to 4.1% y/y last month, but that mainly reflects a rise in food inflation and underlying price pressures are stabilising. Taking that together with the …
9th November 2020
US election: Goldilocks scenario for Lat Am? Joe Biden looks set to win the US election and will probably face a divided government in the Senate. That may be the best outcome for Latin American economies. For Mexico, Biden will probably take a less …
6th November 2020
Surging food inflation unlikely to concern Copom The further rise in Brazilian inflation to 3.9% y/y in October, from 3.1% y/y in September, was (again) mostly driven by higher food inflation. We don’t think that the central bank will be too concerned …
Solid end to Q3 September’s solid 2.6% m/m rise in Brazilian industrial production took output above its pre-crisis level, and suggests the economy continued to fare well at the end of Q3. The latest surveys point to further strong gains in October, …
4th November 2020
We think that the latest activity surveys for October may be overstating growth in Brazil, although they reinforce the view that its economy remains ahead of Mexico at this stage of the recovery. The recently-released October activity surveys can give us …
3rd November 2020
The result of Tuesday’s US election is unlikely to be as important for Mexico as it was four years ago, with domestic factors remaining key to its bleak economic outlook. However, Biden’s climate change agenda could raise tensions with Brazil, and dampen …
2nd November 2020
Brazil: inflation concerns look overdone Concerns about the recent rise in inflation in Brazil have grown this week, with some suggesting that the IPCA-15 figure published in the previous week showed signs of a rise in underlying price pressures. There …
30th October 2020
Double-digit recovery masks underlying weakness The 12% q/q rebound in Mexico’s GDP in Q3 still left output some 8% below its Q4 2019 level. And the recovery lost significant momentum throughout the quarter – a trend which we expect to continue. The …
The tone of the Brazilian central bank’s statement from yesterday’s meeting (at which the Selic rate was kept at 2.00%) was a little less dovish than the previous one. But it still provides plenty of reason to expect the Selic rate to remain unchanged for …
29th October 2020
The latest hard activity data show that the pace of recovery eased across most of the region in August and more timely figures suggest that the trend continued in late Q3 and early Q4, indicating that the initial gains from re-opening economies are …
28th October 2020
The overwhelming vote in favour of rewriting Chile’s constitution will set the ball rolling towards entrenching a larger role of the state in the economy. And it may cause the central bank to adopt a more dovish stance in the medium term. This is likely …
26th October 2020
Chile: The long road to a bigger state? Political uncertainty is now the main certainty in Chile. Indeed, Sunday’s landmark referendum on constitutional change could be the start of a long and complex process to alter its political landscape. The latest …
23rd October 2020
Food inflation continues to surge The jump in Brazilian inflation, to a seven-month high of 3.5% y/y in the middle of October, was driven almost entirely by the ongoing spike in food inflation. This is likely to keep inflation high in the next few months. …
Above-target inflation unlikely to stop Banxico’s easing cycle Although Mexico’s headline inflation was above the central bank’s target, at 4.1%, in the first half of October, with price pressures likely to ease and activity still weak, we think that …
22nd October 2020
Overview – The picture has brightened for Latin America as new COVID-19 cases have fallen from their peaks, which should allow governments to ease restrictions and provide a boost to economic recoveries. Even so, with the number of new cases still very …
21st October 2020
Mounting pressure for the ARS to fall This week Argentine President Fernández and Economy Minister Guzmán poured cold water on the idea that the peso would be devalued. But with the central bank (BCRA) struggling to manage the currency, policymakers may …
16th October 2020
Latin America’s non-oil economies will see larger benefits than most other countries from China’s rebound. This provides grounds for cautious optimism about the prospects for Chile and Peru. But for the rest of the region, the boost from China will be …
13th October 2020
Manufacturing recovery fading The 3.3% m/m rise in Mexico’s industrial production in August was largely driven by a delayed rebound in construction output. Manufacturing production only rose by 0.8%, and more timely indicators suggest the sector will …
12th October 2020
IMF wades in on fiscal policy... The IMF made headlines this week with the suggestion in its latest Fiscal Monitor that governments across the globe should continue to spend to support economic recoveries. It’s giving a similar message to Mexico. Indeed, …
9th October 2020
Food inflation surges, Copom unlikely to be troubled The jump in Brazilian inflation, to 3.1% y/y in September, was almost entirely driven by surging food inflation. Food inflation is likely to continue putting upward pressure on the headline rate in the …
More Banxico easing on the cards The stabilisation in Mexican inflation at 4.0%, after four successive monthly rises, should dampen hawkish sentiment at Mexico’s central bank. We think there is scope for at least one more 25bp rate cut, which is a more …
8th October 2020
Pressure for loose fiscal policy in Brazil is likely to persist and we think that the spending cap will be cast aside in the coming years. The government is already testing the water with creative accounting to get around spending limits and this is …
6th October 2020
BCRA heading in the right direction Argentina’s central bank (BCRA) announced a new monetary policy strategy in which it will allow a ‘managed float’ of the peso. It’s a promising step in the right direction, and should allay fears of a slide towards the …
2nd October 2020
Nearing pre-crisis levels The 3.2% m/m rise in Brazilian industrial production suggests that the sector has now returned to close to its pre-crisis level of output. But the data also provide some early confirmation that the surveys for the sector (which …
The latest figures suggest that the number of COVID-19 infections in the region has passed its peak – new cases are down by 35-60% compared to their July/August peaks in most of the large Latin American countries. And strains in healthcare sectors have …
30th September 2020
Lat Am currencies likely to recover The recent drop in global risk appetite, linked to fears over second waves and fading chances of additional US fiscal support, have put EM currencies in the firing line. At the time of writing, Latin American currencies …
25th September 2020
Higher inflation won’t yet put an end to the easing cycle The further rise in Mexican inflation, to 4.1% over the first half of September, was mainly driven by higher food and fuel prices. We suspect that the central bank will look past this and cut its …
24th September 2020
Food price spike drives headline rate up The further rise in Brazilian food inflation pushed up the headline rate to 2.7% y/y in the first half of September but, with core inflation still extremely soft, we doubt the central bank will be concerned. …
23rd September 2020
With new virus cases still high, capital controls more pervasive, and fiscal policy unlikely to stay loose, we are nudging down our Argentina GDP forecasts. We now expect an 11% drop this year and just a 4% rebound in 2021 (previous forecasts -10% and …
Rising food inflation in Brazil is likely to remain a cause for concern among politicians over the rest of the year, but with core inflation extremely weak, it’s not going to spook the central bank (BCB). One of the most notable features of the recent …
22nd September 2020
Argentina clamping down on dollars Argentina’s central bank has tightened capital restrictions (“ el cepo ”) to try to regain control over the peso. The strategy is just a short-term fix, though, which may come back to bite in a few years’ time. One of …
18th September 2020
The dovish tone of the Brazilian central bank’s statement from yesterday’s meeting (at which the Selic rate was left at 2.00%) supports our view that the policy rate will remain at its current historic low into 2022. In contrast, most analysts and …
17th September 2020
Votes due this week by Peru’s congress on whether to impeach the president and to censure (remove) the finance minister will likely be close calls and could leave a power vacuum. That said, history suggests that the near-term economic and financial market …
14th September 2020
A way out of Brazil’s fiscal straitjacket? Brazil’s congress will reportedly receive a plan for the Federative Pact reform next week, which could ease concerns about the public finances. The essence of the Pact is that it will shift spending …
11th September 2020
Industrial rebound losing momentum The marked slowdown in Mexico’s industrial production growth from 17.9% m/m in June to 6.9% m/m in July suggests the economic recovery was losing momentum at the start of Q3 – a trend which we expect to continue. This …
Chile’s economy is recovering more quickly than we had previously expected and, as a result, we are revising up our 2020 GDP growth forecast to -5.5% (previously -7.0%). The stronger rebound has eased pressure on the central bank to loosen monetary policy …
10th September 2020
The frugal 2021 budget proposed by Mexico’s government underlines policymakers’ fixation about public debt risks and concerns about their credit rating. Meeting policymakers’ new and ambitious targets may prompt a shift to fiscal tightening next year, …
9th September 2020
