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President-elect Jair Bolsonaro has touched on all the right areas needed to get Brazil’s public debt ratio off its current unsustainable trajectory. In this Focus , we answer five questions in order to get a sense of the scale of the problem and what …
31st October 2018
The stronger-than-expected rebound in Mexican GDP in Q3, following its contraction in Q2, supports our view that growth will be better than most are anticipating in the coming quarters. Our forecast for GDP to expand by 3% next year lies above the …
30th October 2018
The direct impact on Mexico’s economy resulting from president-elect Andrés Manuel López Obrador’s decision to scrap the Texcoco airport project will be small, but it is the clearest sign yet that policymaking will be more interventionist and …
Comments from Brazil’s president-elect suggesting that the central bank should target the exchange rate have made headlines today but his post-election comments otherwise point to orthodox macroeconomic policy. More importantly, the extent of Mr. …
29th October 2018
The growing optimism in Brazil’s markets about a likely victory for Jair Bolsonaro in the presidential election this Sunday is increasingly difficult to square with events on the ground. In Mexico, the populist tone on energy policy struck by …
26th October 2018
The sharp rallies in the Argentine peso and Brazilian real reflect growing optimism that economic policymaking will improve in both countries, but markets seem to be looking through the political hurdles to reform that are building. While Argentina’s IMF …
25th October 2018
The Colombian peso has fallen by more than other Latin American currencies since August, and we expect a further underperformance over the next two years as oil prices fall, balance sheet vulnerabilities come to the fore, and the central bank ends its …
24th October 2018
Growth in Latin America as a whole is likely to strengthen over the coming quarters, but with monetary and fiscal policy tightening in most countries, it will be weaker than most expect. We’re relatively upbeat on the near-term outlook for Mexico, the one …
22nd October 2018
The plans outlined by Brazil’s likely next president, Jair Bolsonaro, to tackle some of the causes of Brazil’s productivity problem should be welcomed. But his apparent waning commitment to fiscal and welfare reforms suggests that the chances of a …
19th October 2018
The statement accompanying the Chilean central bank’s decision to increase its policy rate by 25bp last night to 2.75%, suggested that a gradual tightening cycle would lie in store over the next 12-18 months. But we think that tightening will come more …
The platform of Mexico’s president-elect Andrés Manuel López Obrador (Amlo) has become clearer in recent weeks and a sudden lurch to the left when he takes office in December seems unlikely. One consequence is that the peso should hold up well, paving the …
18th October 2018
The falls in most Latin American currencies this year have improved competiveness, but the conditions don’t seem to be in place for this to translate into a significant increase in net exports. … Weaker currencies to provide only a modest …
16th October 2018
Business friendly candidate Jair Bolsonaro looks on course to win the second round of Brazil’s presidential election later this month, but recent noises from the campaign trail have called into question his commitment to market-friendly reforms. …
12th October 2018
The surprise contraction in Mexican industrial production in August puts paid to a strong rebound in overall GDP growth in Q3. But the drop was due in large part to a slump in construction. And with business and consumer confidence indicators still …
The further rise in Mexican inflation in September will provide yet more ammunition to the hawks within Banxico. But with inflation now likely to have peaked, we still expect the next move in interest rates to be down – although this is unlikely to come …
9th October 2018
The sizeable rise in Chilean inflation to 3.1% y/y in September, taken together with hawkish comments from policymakers, supports our view that rates will begin to rise at the central bank’s meeting next Thursday. We’ve pencilled in a 25bp rise in the …
8th October 2018
The strong showing for Jair Bolsonaro and his party in yesterday’s general election in Brazil has increased the chances of pro-market reform. This is likely to prompt an initial rally in local markets – we think the real might rise by another 3-5% against …
The sharp rally in Brazilian asset prices this week appears to reflect growing expectations that right-wing candidate Jair Bolsonaro will win the presidential election, the first round of which is on Sunday, but we think the markets are getting ahead of …
5th October 2018
The rise in Brazilian inflation, to 4.5% y/y in September, has already exceeded the BCB’s newly-published forecasts. And, taken together with comments from policymakers that hint at the start of a tightening cycle, it’s looking most likely that the first …
The rally in Brazilian markets this week on polls showing a rise in support for right-wing presidential candidate Jair Bolsonaro suggests that the political risk premium being priced in has declined sharply. Given how tight the presidential race is and …
4th October 2018
The timing of the Brazilian central bank’s first interest rate hike is likely to be determined by politics as much as economics. There’s a lot of uncertainty related to the outcome of the Presidential election. But, as things stand, it seems most likely …
3rd October 2018
The surprisingly large 0.3% m/m fall in Brazilian industrial production in August seems to be due to a temporary halt in production at one of the country’s petroleum refineries, which should have unwound last month. Even so, surveys suggest that …
2nd October 2018
The announcement of a trilateral trade deal with the US and Canada removes one major source of uncertainty surrounding Mexico’s outlook. The focus will increasingly shift onto the policies of president-elect Andrés Manuel López Obrador, and the evidence …
1st October 2018
The market reaction to Argentina’s revamped IMF deal suggests that, while investors believe that sovereign default risks over the next year or so have receded, they remain elevated further out. Meanwhile, the latest budget data from Brazil underline the …
28th September 2018
The slowdown in Brazilian retail sales growth in the last few months looks alarming, but there are reasons to think that any weakness in overall consumer spending will be more modest. … How bad is Brazil’s consumer …
27th September 2018
The larger-than-expected increase in the size of Argentina’s revamped IMF credit line reduces debt rollover risks and is likely to lead to a rally in local markets when they open later today. The central bank’s revamp of its monetary and currency policy …
With Argentina reportedly set to announce a new and improved IMF credit line later today, in this Update we outline what investors should look out for in the deal. … What to look for in Argentina’s new IMF …
26th September 2018
The surprise resignation of Argentina’s central bank governor, Luis Caputo, and nationwide strikes – in protest against President Macri’s austerity plan – underscore the difficulty of fixing the country’s economic mess. Mr. Caputo reportedly clashed with …
25th September 2018
Today’s softer-than-expected inflation data from Mexico, which showed that price pressures were unchanged in the first half of this month, supports our view that the headline rate will resume its downwards trend in Q4. In contrast to the market, we expect …
24th September 2018
Support for Fernando Haddad, the presidential candidate of Brazil’s Workers’ Party, has risen over the past week and recent comments suggest that he is trying to distance himself from the party’s left-wing platform. That said, regardless of who wins …
21st September 2018
The statement that accompanied the Brazilian Central Bank’s meeting last night provided the first clear sign that it is preparing to tighten monetary conditions, with the first rate hike likely to come before the end of 2018. But the tightening cycle is …
20th September 2018
Argentina’s 2019 federal budget presented to Congress last night contains a large fiscal squeeze and, if implemented in full, would stabilise the public debt ratio. However, some key IMF requests have been sidestepped, and fiscal slippage is likely ahead …
18th September 2018
Argentina’s 2019 budget will reportedly contain some much-needed spending cuts, but key IMF requests are conspicuous by their absence. Meanwhile, Brazil’s election race is beginning to heat up, but the chances of major economic reform after the vote seem …
14th September 2018
Brazil’s presidential race is still very open, but the scale of the challenge the victor will face means that even a market-friendly president won’t be able to stabilise the public finances and boost potential growth significantly. Markets don’t appear to …
11th September 2018
The larger-than-expected 0.2% m/m gain in Mexican industrial production in July is an early sign that the slump in the sector in Q2 will reverse in Q3. This supports our view that Mexican GDP growth over the next 12 months or so will be stronger than most …
The Andean economies of Chile, Peru, and Colombia all appear to be close to raising interest rates. In this Update, we take a closer look at what has triggered central banks to begin tightening cycles in the past. The short point is that Chile’s central …
10th September 2018
The third consecutive monthly rise in Mexican inflation was driven by higher energy inflation, and is unlikely to spook Banxico. Accordingly, assuming the peso holds up reasonably well between now and the next meeting, the Board is likely to leave rates …
7th September 2018
The export tax announced by Argentina’s President Mauricio Macri this week, which formed the centrepiece of an emergency fiscal austerity package, will help to narrow the budget deficit. But the fact that more ambitious structural fiscal reforms on the …
The recent turmoil in local markets means that Argentina’s recession will be even deeper than we previously anticipated. We now expect a 4% drop in GDP over 2018 as a whole (vs. -0.5% previously), and a further 2% contraction next year. A sovereign …
6th September 2018
The decline in Brazilian inflation in August, to 4.2% y/y, adds to the reasons to think that Copom won’t raise interest rates at its meeting this month. Moreover, core inflation still looks quite soft and we think the pace of the eventual rate hikes over …
The statement accompanying the decision by Chile’s central bank to hold its policy interest rate at 2.50% flagged that a tightening cycle will begin in the coming months. We remain comfortable with our forecast for rates to begin rising at the next policy …
5th September 2018
The recent collapse in the Argentine peso has raised concerns about a sovereign default. As things stand, we think it’s most likely that the government will be able to service its upcoming debts. That said, failure to secure further IMF funding or fiscal …
4th September 2018
The small fall in Brazilian industrial production in July, of 0.2% m/m, provides further evidence that the economy’s recovery from the truck drivers’ strike in May has been soft. However, leading indicators do at least suggest that industry strengthened …
The sense of crisis that engulfed Argentina on Wednesday and Thursday seems to have eased today and, while there is a clear risk that the currency falls further in the near term, based on the real exchange rate it looks like the necessary adjustment may …
31st August 2018
The 0.2% q/q rise in Brazilian GDP in Q2 was a decent outturn given the disruptions to the economy caused by the truck drivers’ strike in late May. And growth is likely to strengthen in the second half of the year. However, downwards revisions to the …
The sell-off in the Argentine peso this month gathered pace after the government’s impromptu request to draw down more of its IMF bailout. Rather than soothing market tensions, this reinforced concerns about the government’s ability to service its debts. …
The Argentine government’s announcement that it wants to draw on more of its IMF bailout package reflects the harsh reality of large upcoming FX debt repayments, especially in November. But the collapse in the peso triggered by the news also highlights …
30th August 2018
The surge in GDP growth in Q2 to more than 5% in Chile and Peru probably marks the peak in both countries’ economic cycle. But there is still some spare capacity left. And, as a result, we expect that growth will remain strong in the coming quarters. Our …
29th August 2018
The preliminary bilateral trade deal between Mexico and the US, announced yesterday, is a far cry from the radical overhaul of the two countries’ trading relationship that many had feared. Tighter rules of origin and new labour content requirements in the …
28th August 2018
Today’s announcement of a bilateral trade agreement is definitely good news for Mexico and the US, but could be good or very bad for Canada. More generally, it illustrates that, despite the Trump administration’s intransigence over trade disputes in …
27th August 2018
