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The latest figures show that inflation rose across Latin America in June and early July, but the reaction from the region’s central banks is likely to differ. Policymakers in Mexico will focus more on the peso – which is up against the dollar this month. …
26th July 2018
The statement accompanying the decision by Chile’s central bank to hold its policy interest rate at 2.50% provided the clearest sign yet that policymakers are moving towards tightening. This supports our view that interest rate hikes will come sooner, and …
25th July 2018
The recovery in Latin America stalled in Q2, but we expect regional growth to accelerate over the coming quarters and our GDP forecasts for 2018-19 are generally above consensus. The main exception is Argentina, where we remain more bearish than most …
24th July 2018
Central banks in Colombia and Chile are set to leave interest rates unchanged at their meetings next week, but we think rates are likely to rise sooner, and a little further, than the markets are currently pricing in. Meanwhile, there remains a long way …
20th July 2018
There is growing evidence that, despite Banxico’s best efforts, inflation expectations in Mexico are becoming unanchored. One consequence is that the monetary policy debate over the coming months will focus on the need for more rate hikes. However, we …
19th July 2018
The 2019 budget guidelines approved by Brazil’s Congress this week diluted measures to contain spending and reinforce our view that appetite for economic reform in the legislature is waning. Even if an investor-friendly candidate wins October’s …
13th July 2018
The hit to the Brazilian economy from May’s truck drivers’ strike already seems to be reversing. But the recent tightening of financial conditions means the recovery over the second half of the year is likely to be weaker than we previously thought. We …
The disappointingly weak Mexican industrial production data for May suggest that the sector probably made a small negative contribution to overall GDP growth in Q2. … Mexico Industrial Production …
12th July 2018
The small rise in Mexican inflation, to 4.6% y/y last month, from 4.5% y/y in June, was due almost entirely to a rise in energy inflation, while core inflation fell to an 18-month low. The next interest rate decision will hinge largely on moves in the …
9th July 2018
Mexican financial markets have rallied this week following some business-friendly noises from left-wing president-elect Andrés Manuel López Obrador (Amlo), but we’d be wary of reading too much into his comments. There’s still some time before he takes …
6th July 2018
The jump in Brazilian inflation last month, to 4.4% y/y, from 2.9% y/y in May appears to be a result entirely of the truck drivers’ strike and electricity price hikes, and there are already signs that the impact may now have peaked. As a result, …
The 10.9% m/m fall in Brazilian industrial production in May suggests that the truck drivers’ strike at the end of that month may have knocked about 0.4-0.6%-pts off q/q GDP growth in the second quarter. But we expect the sector to recover lost ground …
4th July 2018
Argentina’s currency crisis has caused financial conditions there to tighten sharply in the past few months, and this is one reason why we expect the economy to fall into recession in the coming quarters. But there are signs that the broader EM sell-off …
3rd July 2018
The conciliatory tone of Andrés Manuel López Obrador’s (Amlo’s) speeches following his convincing presidential election victory has been relatively well-received by the markets. But it’s worth cautioning that we still have little clarity on Amlo’s …
2nd July 2018
A victory for left-wing populist Andres Manuel Lopez Obrador (Amlo) in Mexico’s presidential vote this weekend looks priced in. The market reaction is likely to take its cue from the performance of his Morena coalition in the legislative elections taking …
29th June 2018
Rising political risk has dominated the headlines in Latin America this month. A recent truck drivers’ strike in Brazil, a protest against the removal of diesel subsidies, has disrupted activity and pushed up inflation. While the strike has ended, the …
A victory for left-wing populist Andrés Manuel López Obrador (Amlo) in Mexico’s presidential election on Sunday appears to be priced in to markets. But a strong showing for his Morena coalition in legislative elections on the same day could still push the …
28th June 2018
Chile’s short-term external debt burden is one of the largest in the emerging world, but there is more to it than meets the eye. A large chunk reflects intercompany lending, and most of this is concentrated in the mining sector. Accordingly, in contrast …
26th June 2018
The Mexican central bank’s decision to raise interest rates this week underscored its sensitivity to currency weakness and, while our base case is that this move will be a one-off, further falls in the peso in the coming months would clearly push the …
22nd June 2018
The latest sell-off in the Mexican peso tips the balance towards policy being tightened at Thursday’s central bank meeting. We’re changing our forecast and now expect a 50bp hike in the policy interest rate to 8.00%. In contrast, recent comments from …
19th June 2018
The victory for business-friendly candidate Iván Duque in Colombia’s presidential election looks largely priced in and should have a limited impact on local markets in the coming days. Investors will now turn their attention to the makeup of Mr Duque’s …
18th June 2018
The statement accompanying the decision by Chile’s central bank to hold its policy interest rate at 2.50% was slightly less dovish than its last, supporting our view that the central bank will shift into tightening mode over the next 6-9 months. … Chile …
14th June 2018
Mexico, as well as several smaller countries in Central America (including Nicaragua, Honduras and Costa Rica), are most vulnerable to a general escalation in US protectionism. But individual sectors in some countries – including aeronautics in Brazil – …
13th June 2018
The second consecutive monthly decline in Mexican industrial production in April was disappointing, but the data are volatile and must be viewed in the context of an economy that is performing well on the back of a robust services sector. We don’t think …
11th June 2018
Brazilian inflation ticked up from 2.8% y/y in April to 2.9% in May, due in part to the recent truck drivers’ strike, which has led to supply disruptions. And while the markets have responded to the recent drop in the real against the dollar by pricing in …
8th June 2018
Confirmation that Argentina has reached an agreement with the IMF over a financing package will help to restore investor confidence and provide a much-needed anchor for the country’s necessary economic adjustment. But sticking to the IMF’s conditions – …
Mexican inflation continued to fall in May, and while the markets have responded to the recent drop in the peso against the dollar by pricing in a 25bp hike at this month’s policy meeting, we’re sticking to our view for rates to remain unchanged at 7.50%. …
7th June 2018
The fall in the real over the past couple of months means that, judged on macroeconomic fundamentals at least, the currency no longer looks overvalued. The big risk over the next six months is that the outcome of October’s elections deliver another blow …
6th June 2018
The direct effect of Mexico’s new tariffs on imports from the US will be moderate. But the move will make the process of renegotiating Nafta even more difficult. The peso has fallen sharply in response and, if it falls further over the coming days, …
5th June 2018
The larger-than-expected 0.8% m/m rise in Brazilian industrial production is encouraging given the sector’s weak showing in Q1. But the trucker’s strike that paralysed the country for nine days last month means that this is likely to be reversed in the …
The rise in oil prices over the past six-nine months will have a mixed effect on economies in Latin America, with Colombia, Venezuela and Ecuador the biggest winners, and Chile the biggest loser. … What do higher oil prices mean for Latin …
4th June 2018
Argentina’s currency crisis has put the spotlight on the country’s growing economic fragilities, but vulnerabilities in the region’s other major economies have diminished in recent years. Current account deficits of most countries are now less than 2% of …
31st May 2018
The truck drivers’ strike that has paralysed large swathes of Brazil’s economy over the past nine days has generated some apocalyptic headlines and led many forecasters to slash their 2018 GDP growth forecasts. However, past experience suggests that any …
30th May 2018
The 0.4% q/q rise in Brazilian GDP in Q1 was modest but will go some way to allaying concerns that the economic recovery has stalled altogether. The truck drivers’ strike that has gripped parts of the nation in recent days will weigh on activity in May …
The victory for centre-right candidate Iván Duque in the first round of Colombia’s presidential election on Sunday was largely expected and, as such, has had little impact on local financial markets over the past 24 hours. Polls suggest that he is the …
29th May 2018
We expected 2018 to be a year of weakness for Latin American currencies, but the recent falls against the dollar have pushed a number of exchange rates through our year-end forecasts already. We’re wary of chasing the market but the balance of risks are …
25th May 2018
Despite the near-25% drop in the peso against the dollar so far this year, Argentina is not yet facing a sovereign debt crisis. The public debt ratio will rise this year, but not to an alarming level, and should stabilise if policymakers follow through …
23rd May 2018
Peru’s strong growth in Q1 supports our view that the recovery should continue in the coming quarters, and that GDP will grow by 3.5% over this year as a whole. … Peru GDP …
21st May 2018
The victory for Nicolás Maduro in Venezuela’s presidential election paves the way for an escalation of US sanctions – possibly on the oil sector – and a messy sovereign debt default and restructuring. The government and PDVSA’s debt repayment schedule …
Centre-right candidate Iván Duque looks set to win the first round of Colombia’s presidential election next week, and if he also prevails in the second round – as seems likely – he will inherit an economy slowly emerging from a downturn. His fiscal …
18th May 2018
The stronger-than-expected increase in Chilean GDP growth in Q1 was broad based and we expect the recovery to continue over the next year or so. Today’s data support our above-consensus forecast for GDP growth of 3.5% for this year. … Chile GDP …
The lesson from EMs that have been forced to turn to the IMF for financial support in the past is that Argentina will need a combination of front-loaded fiscal tightening, reforms at the central bank, high real interest rates and a weak currency to …
Following its near-20% drop so far this year, Argentina’s real effective exchange rate looks pretty close to its ‘fair’ value – we estimate that it probably needs to fall by a modest 5% or so from here. But high inflation relative to its trading partners …
17th May 2018
Colombian GDP growth picked up from 1.8% y/y in Q4 to 2.2% y/y in Q1, and we think the recovery will strengthen by more than the consensus expects this year. … Colombia GDP …
15th May 2018
There are some similarities between Argentina’s current crisis and 2001/02 crisis. But there are also critical differences, not least the fact that the peso is now free-floating and the authorities have control over their own monetary policy. As such, …
The recent weakness of Brazilian inflation appears to be due in part to persistently weak food inflation, but more importantly it looks like the large output gap in the economy has dragged down core inflation. As a result, while the headline rate will …
11th May 2018
March’s better-than-expected industrial production data from Mexico, which were the result of a surge in manufacturing output, support our view that GDP growth this year will be stronger than most expect. … Mexico Industrial Production …
The news that Argentina has started talks with the IMF over a full-blown bailout has masked the fact that – deal or no deal – the economy is likely to fall into recession this year. We now expect GDP to contract by 0.5% this year (vs. growth of 2.5% …
10th May 2018
Brazilian inflation ticked up to 2.8% y/y in April, but underlying price pressures are still subdued. Taking that together with softer economic activity figures, we think COPOM will cut the Selic rate again when it meets later this month. The markets now …
The further drop in Mexican inflation last month reinforces our view that the tightening cycle is over and that the next move in interest rates will be down. In contrast, the markets have responded to the recent drop in the peso by pricing in a fresh …
9th May 2018
