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Inflation rises, but central banks won’t be too alarmed Brazilian inflation remained well below the central bank’s target last month, at 2.4% y/y, confirming that price pressures are soft and supporting our view that the Selic rate will stay low for a …
9th September 2020
While the number of new coronavirus cases in Brazil remains extremely high, strains in the country’s health care system have eased significantly in recent weeks, reducing the risk of fresh lockdowns. But by the same token, containment measures are only …
8th September 2020
Brazil & Mexico’s PMIs diverge The manufacturing PMIs for August published this week were surprising, both for the strength they implied in Brazil’s economy and the weakness in Mexico’s. But in both cases, the surveys are painting an exaggerated picture …
4th September 2020
Industry making up lost ground quickly The stronger-than-expected 8.0% m/m rise in Brazilian industrial production in July adds to signs that the economy has recovered strongly in Q3. But with fiscal austerity likely to kick in next year, the pace of …
3rd September 2020
The latest data suggest that, after one of the world’s steepest economic declines in Q2, Peru’s recovery is already stalling against a backdrop of high and rising new coronavirus cases. But for those willing to squint hard enough, there are some reasons …
2nd September 2020
The completion of a deal to restructure almost all $66.2bn of Argentina’s international sovereign bonds will give the government some much-needed breathing space over the coming years, as will an upcoming $41.7bn local-law FX debt restructuring. However, …
1st September 2020
A slow recovery ahead The Brazilian Q2 GDP data, which showed a 9.7% q/q fall in output, confirmed that the country suffered one of the more modest downturns in Latin America. But with fiscal policy set to turn from a tailwind to a headwind, the pace of …
Argentina & the IMF: Take 22… Barring any unexpected hiccups, $66.2bn of Argentina’s international sovereign bonds will be restructured next Friday. As will $41.7bn of local-law FX bonds. Now the government wants to tackle the debts owed to its historic …
28th August 2020
Local currency government bond markets in Latin America generally came under pressure this month, but we think that most will rally over the rest of the year. In Chile and Peru, while local currency sovereign yields have risen recently in response to the …
27th August 2020
Copom unlikely to ease further despite weak inflation The further rise in Brazilian inflation, to 2.3% y/y in the first half August, was relatively modest and we expect the headline rate to remain well below the central bank’s 2020 target of 4% over the …
25th August 2020
Banxico set to slow pace of easing The rise in Mexican inflation to 4.0% in the first half of August, the upper end of Banxico’s target range, will probably prompt the central bank to slow the pace of its easing cycle. But with inflation set to drop back …
24th August 2020
Brazil at a fork in the road Fears that Brazil’s economy minister, Paulo Guedes (the linchpin of the government’s reform agenda), might resign have flared up again this week, and we think that there is now a political risk premium of around 20bp on …
21st August 2020
The latest data suggest that Brazil’s recovery so far has been quicker than we expected, which has prompted us to revise up our 2020 GDP growth forecast to -5.0% (previously -7.0%). However, tighter policy, labour market weakness and the continued spread …
19th August 2020
Headline inflation in Mexico looks set to fall towards 3% over the coming months as both food and core inflation soften. We think that will give Banxico scope to cut its policy rate by an additional 75bp to 3.75% by year-end (previous forecast 4.00%), …
18th August 2020
Recovery set to strengthen The 13.2% q/q contraction in Chile’s economy in Q2 appears to have been followed by a only a weak rebound in July but, with policymakers finally starting to get a grip on the coronavirus, the recovery from Q4 should be the …
The 14.9% q/q slump in Colombian GDP in Q2 is not quite there among the worst outturns in the EM world, but it’s not far off. More worryingly, mobility data suggest that the nascent economic recovery that began mid-Q2 may already be stalling. One …
17th August 2020
Brazil: reformists losing hope A growing dispute over the direction of fiscal policy in Brazil threatens to derail the reform agenda and worsen the country’s public debt problem. Two secretaries in the Economy Ministry resigned this week, reportedly due …
14th August 2020
We expect that Mexico’s current account deficit will narrow, and could even turn to a small surplus, over the rest of the year as a strong goods surplus outweighs weaker remittance inflows. That should help the currency to strengthen over the rest of the …
13th August 2020
Industrial rebound taking shape The solid 17.9% m/m rebound in Mexican industrial production in June was largely driven by the reopening of auto factories. While production appears to have strengthened in July, further gains will probably be more muted. …
11th August 2020
Argentina’s restructuring: more challenges ahead After months of back and forth, Argentina’s government and major bondholders (finally) reached a deal to restructure $65bn of international sovereign bonds. But, as we argued was likely , this agreement …
7th August 2020
Rising inflation won’t deter dovish central banks The rise in Brazilian inflation to 2.3% y/y in July is unlikely to worry the central bank and, with the economy still very weak, we expect the Selic rate to stay at its current historic low through this …
The 25bp cut in the Selic rate, to 2.00%, at last night’s Brazilian central bank meeting probably marks the last reduction in the cycle, but the accompanying statement supports our view that rates will remain at rock bottom levels into 2022. The reduction …
6th August 2020
Industry leads the recovery The 8.9% m/m rise in Brazilian industrial production in June and the jump in surveys for July highlight that the sector is recovering surprisingly quickly. But output is still well below its February peak and other parts of the …
4th August 2020
Colombia next in line for early pension access The bill sent to Colombia’s congress this week that would allow citizens to tap up to 10% of their pension savings is similar to those recently passed in Chile and Peru. We analysed the implications of such a …
31st July 2020
The number of new daily coronavirus cases in the region has continued to rise, with only Chile among the major economies appearing to get its outbreak under control. Restrictions have been lifted much more slowly in the region than elsewhere in the …
Massive slump to be followed by weak recovery The 17.3% q/q slump in Mexico’s GDP in Q2 is likely to be one of the largest peak-to-trough falls in the emerging world. With the country still battling with its coronavirus outbreak, and the US recovery …
30th July 2020
Reforms in Chile that allow households to withdraw some of their pension savings may help to boost the economic recovery over the next year. But the way in which the reform was passed adds to the sense that public pressure will result in a higher social …
29th July 2020
AMLO presents new pension system This week, President López Obrador unveiled a plan to revamp Mexico’s pension system in a rare coalition with business leaders and unions. There are two main facets to the reform, which is expected to enter into law next …
24th July 2020
Weak inflation leaves door open to another rate cut The softer-than-expected Brazilian mid-month inflation reading for July, of 2.1% y/y, suggests that there is still scope for another interest rate cut in the current cycle. We expect a 25bp reduction in …
Overview – The failure to contain the coronavirus and the small size of fiscal support in some countries mean that Latin America will have the weakest recovery of any region globally. Brazil, Mexico and Colombia are likely to be the worst performers, …
23rd July 2020
Rising inflation unlikely to stop further Banxico easing We don’t think that the further rise in Mexican inflation to 3.6% y/y in the first half of July will be a major cause for concern for the central bank. Policymakers are likely to focus on the …
The push by Brazil’s government to change the tax system provides a welcome sign that the government’s reform agenda is still progressing, despite the political infighting caused by the handling of the coronavirus crisis. If implemented, the main benefits …
22nd July 2020
Underwhelming regional rebound underway The easing of lockdowns across Latin America generally allowed economic activity to improve in May. For instance, industrial production rose on the month in Brazil, Colombia and Argentina. But the overall picture is …
17th July 2020
The struggles in Mexico’s industrial sector suggests that GDP fell by around 20% q/q in Q2. And the weak prospects for the sector will dampen Mexico’s economic recovery over the coming quarters. Having collapsed in April, Mexico’s industrial production …
15th July 2020
The debt restructuring deal provisionally agreed between Ecuador’s government and a group of its creditors would, if implemented, ease near-term pressures on the public finances. But we are more pessimistic on its potential to help Ecuador achieve debt …
13th July 2020
Debt restructurings may be required…again Sovereign debt restructurings in Argentina and Ecuador came into focus this week, and while there are reasons for optimism, we remain concerned about fiscal sustainability in both countries. In Argentina, …
10th July 2020
Industrial collapse continues The further fall in Mexico’s industrial production in May reinforces our view that GDP suffered a double-digit slump in Q2 (in q/q terms), and suggests that the recovery is lagging those in the rest of the world. After a …
Rising inflation shouldn’t worry Banxico The further rise in Mexican inflation to 3.3% y/y in June, from 2.8% y/y in May, was largely driven by higher fuel prices. We think this trend has a bit further to run, although it is unlikely to deter the central …
9th July 2020
After blowing out in April, budget deficits in Latin America remained wide in May. And while a pick-up in economic activity should help tax revenues to recover and social welfare spending to ease over the second half of the year, the slow pace of the …
8th July 2020
The latest surveys and high-frequency data suggest that Latin America’s economic recovery finally started to firm up in June. But it is still lagging other EM regions – and Chile’s recovery is yet to get going. After a raft of disappointing economic news, …
6th July 2020
Lockdowns battering Lat Am labour markets Data this week painted a clearer picture of the recent hit to Latin American labour markets. On a seasonally adjusted basis, unemployment rates jumped by 5-10%-pts in Colombia and Peru (data for the Lima …
3rd July 2020
Recovery weak in May, but strengthened in June Brazil’s industrial sector only recovered a small share of its coronavirus-related losses in May, with continued weakness the auto sector one key factor. While surveys suggest that the data for June will be a …
2nd July 2020
The decision by the Colombian central bank to slow the pace of easing from 50bp to 25bp at last night’s meeting suggests that the rate-cutting cycle is approaching its conclusion. We remain comfortable with our forecast for two more 25bp cuts in the …
1st July 2020
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
29th June 2020
Fiscal paths point to diverging recoveries The governments of Brazil, Colombia and Chile have recently outlined plans that shed light on the path of fiscal policy beyond this year, which is likely to result in diverging recovery prospects. At one end of …
26th June 2020
Policymakers in the region have started to ease lockdowns but, with daily coronavirus cases still trending higher, restrictions are being lifted much more slowly than in most other countries. And Chile’s government has doubled down on its lockdown in the …
25th June 2020
Below-target inflation leaves room for another rate cut Brazil’s broadly steady mid-month inflation reading for June, of 1.9% y/y, masked the fact that a rise in food inflation offset falls in inflation in most other price categories. Weak price pressures …
Rising inflation doesn’t preclude further rate cuts The rise in Mexican headline inflation to 3.2% y/y in the middle of June will keep policymakers in a cautious mood – something that’s likely to be reflected in the tone of the statement from tomorrow’s …
24th June 2020
Chile’s push for QE gains momentum Chile’s central bank took a further step into unconventional territory this week, after announcing what appears to be the first QE programme in the region. (See our Update for more.) While few details were released at …
19th June 2020
Peru’s economy appears to be suffering one of the largest economic hits of any country from the coronavirus, which is likely to spur further policy easing. With short-term interest rates essentially at zero, further monetary loosening would initially …
18th June 2020
