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The decision by Chile’s central bank to keep interest rates on hold at 3.25% came as a bit of a surprise, but it only marks a pause in the easing cycle and we expect the policy rate to fall to 2.50% by year-end. … Chile pauses easing cycle, but more rate …
15th February 2017
While Brazil’s government is talking a good game on trade, the reality remains that the economy is among the most closed in the world. This is due in large part to structural problems that previous governments, which have been equally pro-trade, have …
13th February 2017
The small fall in Mexican industrial production in December confirms that the sector broadly stagnated over Q4 as a whole. And the early signs are that that this weakness has persisted in the early months of 2017. … Mexico Industrial Production …
10th February 2017
The Central Reserve Bank of Peru’s decision to leave its policy rate on hold at 4.25% was widely expected and, while the outlook for the economy has deteriorated, we still expect rising inflation to trigger rate hikes later this year. Our forecast is for …
The surge in Mexican inflation in January, to 4.7% y/y from 3.4% y/y in December, is largely the result of hikes in regulated fuel prices. Nonetheless, core inflation also continued to rise as a result of the past falls in the peso. Against this backdrop, …
9th February 2017
The plunge in Mexican consumer confidence to a record low in January has raised concerns that a much more severe economic slowdown than we currently expect is underway. But it remains to be seen if this will be borne out in the hard data. In this Update …
8th February 2017
The drop in Brazilian inflation in January, to 5.4% y/y from 6.3% y/y in December, means that another large 75bp cut in the Selic interest rate is on the cards later this month. Elsewhere, inflation in Chile rose last month but this is unlikely to deter …
The public spat between Donald Trump and President Enrique Peña Nieto over who will pay for the proposed border wall has led to some speculation that the US could impose a tax on remittance flows to Mexico. But while any such move would weigh on incomes …
6th February 2017
According to President Trump, Mexico is “beating the US badly on trade” and a big part of the reason is Nafta. In truth, however, the real question is not why Mexico has benefited so much from Nafta, but rather why the economic benefits have been so small …
2nd February 2017
Our Taylor rules suggest that central banks in Latin America attach most importance to the latest inflation rate and the current output gap when setting policy. Some central banks (notably Mexico) take into account other factors such as the exchange rate …
The fall in Brazil’s manufacturing PMI to a seven-month low in January is disappointing. But with more reliable surveys, as well as the hard data, showing an improvement, we don’t think it signals a renewed downturn just yet. Meanwhile, the small rise in …
1st February 2017
The larger-than-expected 2.3% m/m surge in Brazilian industrial production in December was due almost entirely to an increase in vehicle production, which is unlikely to be sustained. Nonetheless, December’s strong data mean the industrial sector grew by …
Mexican GDP grew by a respectable 0.6% q/q in Q4, down from +1.0% q/q in Q3, and, while tighter monetary policy and the uncertainty surrounding US trade policy mean growth is set to soften further this year, we don’t expect it to collapse … Mexico GDP …
31st January 2017
Relations between President Trump and Mexico have got off to an inauspicious start, with spats over the renegotiation of NAFTA, border taxes and, of course, the Wall. From the point of view of Mexico’s economy, three points are worth emphasising. First, …
Financial conditions in Mexico have tightened over recent months, partly reflecting the central bank’s aggressive interest rate hikes in response to the falls in the peso. But there are no signs yet of more destabilising stress akin to the 2008 Global …
30th January 2017
Chilean activity data for December were relatively encouraging, but it still looks like GDP may have contracted in seasonally-adjusted q/q terms between Q3 and Q4. As such, the central bank is likely to cut interest rates further over the coming months. … …
Private sector debt deleveraging in Brazil gathered pace over the second half of last year. But while credit conditions will remain extremely tight this year, there are at least signs that broader financial conditions are starting to ease. … Brazil: …
27th January 2017
President Trump’s intention to renegotiate NAFTA won’t have any immediate consequences for Mexico’s economy since the current agreement will remain in place until a reformed version is approved by all parties. As negotiations develop, here are five key …
25th January 2017
The surge in Mexican inflation in the first half of January, to 4.8% y/y from 3.4% y/y in December, was due largely to hikes in regulated fuel prices. But core inflation also rose further as the effects of a weaker currency pushed up import prices. We …
24th January 2017
Unconfirmed reports suggesting that Venezuelan GDP contracted by a staggering 19% in 2016 would mean that the country experienced the biggest one-year fall in output of any major EM in modern history. Last year’s inflation rate of 490% was merely the …
20th January 2017
Data to mid-January showed another larger-than-expected drop in Brazilian inflation and, barring a sustained slide in the real, we think COPOM is likely to cut the Selic interest rate by another 75bp at next month’s meeting. … Brazil IPCA-15 …
19th January 2017
Having contracted sharply last year, fixed investment across Latin America looks set to return to growth in 2017. With consumer spending likely to remain under pressure, a pick-up in investment will be key to driving an economic recovery in the region. … …
18th January 2017
Market expectations have moved steadily towards our more dovish view on the outlook for inflation and interest rates in Brazil this year. But our forecast for growth in 2017 is still above the consensus and, if anything, there are reasons to think the …
17th January 2017
Peru’s central bank left its key policy interest rate unchanged at 4.25% for the twelfth consecutive month, but with inflation still above target and the risks skewed to the upside, we expect policymakers to resume tightening policy later this year. Our …
13th January 2017
The motives behind the Argentine government’s decision to oust finance minister Alfonso Prat-Gay in December are unclear, but at this stage two key points are worth emphasising. First, despite legislative elections in October, a significant shift in …
12th January 2017
Mexico’s central bank has sufficient ammunition to intervene on an intermittent basis in FX markets to counter sharp selloffs in the peso. But the bigger picture is that interest rate hikes will remain policymakers’ main defence against a weaker peso (and …
11th January 2017
The further drop in Brazilian inflation in December seals the deal for a larger cut in the Selic interest rate at today’s COPOM meeting (decision due 18.20 local time). A 75bp cut is possible, but we still think a 50bp reduction (to 13.25%) is the most …
The key driver of the Brazilian real over the past couple of years has been fluctuations in the price of the country’s commodity exports. Accordingly, our view that the price of Brazil’s main commodity export basket will remain broadly flat in 2017 …
9th January 2017
Mexican inflation accelerated to 3.4% y/y in December and looks set to breach the upper-bound of the central bank’s 2-4% target range as soon as this month as a result of rising domestic fuel prices and the renewed drop in the peso. Intervention in the …
This note is intended to help clients identify areas where the imposition of protectionist measures by President Trump might hit Mexico hardest. On the trade front, Mexico is especially reliant on exports to the US of cars, electronics and foodstuffs. …
6th January 2017
The larger-than-expected drop in Chilean inflation to a three-year low of 2.7% y/y, taking it further below the central bank’s 3% target, probably seals the deal for a 25bp interest rate cut (to 3.25%) at this month’s policy meeting. … Chile Consumer …
Fuel inflation is set to spike in Latin America over the next few months. In most countries, this will be more than offset by the disinflationary forces caused by the stabilisation of exchange rates and, in the case of Brazil and Colombia, falls in food …
5th January 2017
The 0.2% m/m increase in Brazilian industrial production in November was due in large part to a rebound in vehicle production. This suggests that the lingering effects of a parts dispute with suppliers – which plagued the auto sector in Q3 and at the …
The relatively shallow 0.2% q/q contraction in Argentine GDP in Q3 supports our view that the recession is close to an end. We think the economy will return to positive growth in 2017, but the recovery will be slow-going – we expect below-consensus GDP …
23rd December 2016
As a result of the recent falls in the peso, Mexico’s headline inflation rate is on course to break through the top end of the central bank’s 2-4% target range next year. While this should prove to be temporary, we think policymakers will react by hiking …
20th December 2016
Latin America’s economy has ended 2016 on a relatively downbeat note. The news from Brazil has gone from bad to worse, with both industrial production and retail sales falling in the most recent monthly data. Industrial output in Mexico is stagnating, due …
19th December 2016
Peru’s central bank kept interest rates on hold at 4.25% for a tenth consecutive month last night, but with the risks to inflation firmly skewed to the upside, we expect policy tightening to resume next year. … Peru holds interest rates, but hikes likely …
16th December 2016
Latin America’s financial markets have largely shrugged off yesterday’s US interest rate hike, as well as upward revisions to Fed officials’ rate projections – currencies and dollar bonds have made only very small losses and most are still up …
15th December 2016
Peru’s economy weakened sharply in October and, while we don’t think that the slowdown will be sustained, it’s an early sign that GDP growth may weaken in Q4. … Peru Economic Activity …
The small rise in Mexican industrial production in October doesn’t alter the bigger picture that the sector remains the key weak spot in the economy. We expect industry to do little more than stagnate over Q4 as a whole. … Mexico Industrial Production …
12th December 2016
Signs that Brazil’s economy was turning a corner around the middle of this year have been extinguished by a recent run of awful data and – more ominously – renewed political strife. There are still reasons to expect growth to return next year but this …
9th December 2016
The larger-than-expected decline in Brazilian inflation in November, coming on the back of less hawkish communications from policymakers in recent weeks, make it more likely that COPOM will step up the pace of easing at its January meeting. … Brazil …
Mexican inflation rose to 3.3% y/y in November, from 3.1% y/y in October, and it’s unlikely to stop there. We expect the headline rate to climb above the top-end of the central bank’s 2-4% target range by the middle of next year. As such, the central bank …
8th December 2016
After two years of falling output, Latin America’s economy finally looks set to return to growth next year. Brazil and Argentina should exit recessions, while the downturns in Colombia and Chile are likely to bottom out. Investment should start to recover …
7th December 2016
The small uptick in Chilean inflation in November is likely to prove temporary and we expect the headline rate to fall further below the central bank’s target by early next year. Following more disappointing news on the economy, we now expect the central …
The larger-than-expected 1.1% m/m fall in Brazilian industrial production in October provides an early sign that, following the slump in Q3, a strong rebound in output in Q4 is unlikely. … Brazil Industrial Production …
2nd December 2016
Mexico’s manufacturing PMI fell in November following the election of Donald Trump but the decline was very modest and doesn’t point to a renewed downturn in production over the coming months. Elsewhere, Brazil’s PMI nudged down, suggesting that a strong …
1st December 2016
About 0.3%-pts of the 0.8%-pt contraction in Brazil GDP in Q3 can be chalked down to one-off effects stemming from a poor harvest and temporary disruptions to vehicle production. But the big story here remains the persistent weakness in consumer spending. …
30th November 2016
Financial markets in Latin America have stabilised following an initial sell-off in the wake of Donald Trump’s election victory. While we expect dollar-denominated bonds to come under further pressure, we think much of the bad news is now priced in to …
29th November 2016
Chilean activity data for October were slightly worse than expected and suggest that the economy got off to a disappointing start in Q4. They’re probably not enough to convince the central bank to ease policy immediately, but if the data fail to improve …
