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A combination of weak economic growth and low inflation suggest that Colombian interest rates have further to fall. We now expect a further 50bps of cuts to 3.25% over the coming months. … Colombia: Low inflation leaves room for more rate …
25th February 2013
Peru’s economy expanded by a healthy 5.9% y/y in Q4, however growth continues to be heavily dependent on domestic demand. In the current environment of improved global risk appetite, there is a risk that capital inflows will exacerbate these imbalances …
The Brazilian real has rallied towards 1.95/US$ in recent weeks after government officials hinted that a stronger currency would be tolerated to help contain inflation. By contrast, in most other parts of the region currencies have weakened on signs that …
21st February 2013
Global copper mine supply grew at its fastest rate in eight years in the closing months of 2012 and mine output is likely to grow just as quickly this year. This should enable smelters to raise their output, but it will also add to the stockpiles of …
20th February 2013
Despite the surprise fall in retail sales in December, Brazilian consumer spending growth appears to have been strong in the final quarter of last year. The problem is that with local producers either facing capacity constraints or struggling to compete …
19th February 2013
Mexican fourth quarter GDP data suggest that despite the weakness of industry in the final months of last year, domestically focussed sectors have taken up the slack. We expect the economy to grow by 3.5% this year. As a result, despite a sharp drop in …
18th February 2013
Rafael Correa’s emphatic victory in yesterday’s Ecuadorian Presidential Election looks to have breathed new life into a Latin American left which has suffered a series of setbacks in recent months. But beyond the headlines, there are reasons to question …
Chile’s Central Bank faces a difficult balancing act between cooling buoyant domestic demand, which suggests a need for tighter monetary policy, and taming a strong currency, which is already weighing on external competitiveness and which would appreciate …
15th February 2013
The Argentine peso fell to a record low of 5/US$ today, however most small businesses and consumers are forced to access dollars at an even weaker rate on the black market. Going forward, we expect the Fernández government to allow the official peso to …
13th February 2013
The Venezuelan authorities bowed to the inevitable late on Friday and devalued the bolivar fuerte. Although this should help to ease some of the strains in the public finances, it won’t do much to support the wider economy which is in danger of falling …
11th February 2013
The latest data do little to change our view that Peruvian interest rates are going nowhere this year. Persistent concerns over the strength of the sol mean that policymakers are far more likely to use macro-prudential measures as a means of cooling …
8th February 2013
Brazil’s inflation data are going from bad to worse. Headline inflation rose to a 12-month high of 6.2% last month and is likely to remain above 6% for at least the first half of this year. The central bank will tolerate a stronger real in an effort to …
7th February 2013
The most puzzling aspect of Brazil’s poor economic performance of the past 18 months is that it has come alongside an improvement in the labour market. We think the explanation lies in Brazil’s low rate of productivity growth. This means that employment …
The Mexican economy is unlikely to de-couple from the neighbouring US in an absolute sense over the coming years, but it may at least decouple on a relative basis. Whereas our forecast for US GDP growth of 2% or so over the next two years would have …
5th February 2013
Signs that Latin America’s lending boom has faded support our belief that credit can’t continue to be as big an economic driver as in the recent past, and we expect GDP growth to ease this year. Paradoxically, this is a better outcome for the region than …
4th February 2013
The stagnation in Brazilian industrial production in December means that the sector contracted once again in the final quarter of last year. What’s more, the drop in capital goods output suggests that there is no sign yet of a much-needed rebalancing away …
1st February 2013
The recent rally in Argentine equities stands in stark contrast to a falling foreign currency bond market this year. A weak bond market performance is largely explained by a US court case which has raised fears of a fresh sovereign default. But we also …
31st January 2013
Inflation has continued to slow in most countries in Latin America, with the notable exception of Brazil. Here, inflation has accelerated to 6% as supply constraints have aggravated core price pressures. One consequence for Brazil is that there is little …
29th January 2013
The slowdown in Colombian growth has been driven as much by structural as by cyclical factors, and suggests that interest rates could remain low for an extended period. We expect at least one more 25bp cut to 3.75% this year, while the authorities are …
The Capital Economics Argentina Activity Indicator shows that Argentina’s economy continued to recover in the final quarter of 2012. Even so, we estimate that GDP growth was close to zero for the year as a whole. The latest data also suggest that the …
25th January 2013
An improvement in risk appetite since the turn of the year has supported further gains in Latin American financial markets. But with the good news has come renewed upward pressure on the region’s exchange rates. Talk of “currency wars” has resurfaced and …
24th January 2013
The dovish tone of the statement that accompanied last week’s decision by the Mexican central bank to keep interest rates on hold has fuelled speculation that policy could soon be eased. Growth has slowed, as we had expected. But we suspect that it will …
23rd January 2013
This is the first edition of our new monthly Latin America Markets Monitor . The purpose of this publication is to analyse the developments in local markets over the past month and give an update on our key forecasts. Latin American markets have started …
22nd January 2013
A recent pick-up in inflation has reduced the space for further policy easing in Brazil, and we expect the Selic rate to remain at 7.25% until at least mid-year. Further ahead, if we are right to think that Brazil’s economic recovery will disappoint, then …
17th January 2013
The effectiveness of Peru’s benchmark interest rate as a policy instrument is constrained by high levels of foreign currency lending and concerns over the strength of the sol. Further increases in dollar reserve requirements appear likely this year, but …
15th January 2013
Record levels of foreign direct investment into the commodities sector suggest that Dutch Disease will continue to drag on the Colombian economy this year. We expect policymakers to react with another 50bps of interest rate cuts, to 3.75%, and additional …
14th January 2013
The rise in Brazilian inflation last month is particularly worrying since it came despite a moderation in food inflation. With plans to cut electricity tariffs now under threat from a drought that has hit hydro-electricity production, there is a real …
10th January 2013
The pace of growth of Ecuador’s economy slowed substantially in 2012 and we expect this trend to continue over the current year. This is unlikely to put a serious dent in President Correa’s bid for re-election, but it does suggest that another term in …
A strong start to the year for the Chilean peso has led to renewed speculation that the central bank will be forced to intervene in FX markets to weaken the currency. While intervention is possible, it will have a limited medium-term impact on the …
9th January 2013
Events have recently swung back in Argentina’s favour in its dispute with holdout bondholders. Despite this, there remains a significant risk of a default over the course of this year. What’s more, even if Argentina does avoid a technical default it is …
8th January 2013
The recent rally in Venezuelan government bonds, on the back of speculation that the deteriorating health of President Hugo Chávez will lead to a shift towards more market friendly policies, stands in sharp contrast to the fall in the black market value …
7th January 2013
We suspect that the record high reading from the Mexican manufacturing PMI in December paints a false picture of strength. Other surveys have been weaker, and the hard data suggest that activity slowed towards the end of last year. … Mexican industry …
3rd January 2013
Brazil’s recovery will continue in 2013 but growth is likely to be lacklustre by historic standards. Above target inflation will prevent further policy support in the first few months of the year, but further rate cuts are possible later on. We also …
The slight fall in the Brazilian Manufacturing PMI in December suggests that while industry in Latin America’s largest economy continued to grow in the final months of last year, the pace of expansion was lacklustre. We expect this pattern of positive but …
2nd January 2013
The unexpectedly sharp slowdown in Colombian GDP growth in Q3 supports our non-consensus view that interest rates are likely to fall further. In fact, we think the central bank is now likely to cut rates by 25bps to 4.5% at tomorrow’s Board meeting. And …
20th December 2012
Our GDP Tracker suggests that growth in Latin American has accelerated in Q4, with a recovery in Brazil offsetting a slowdown in Mexico. However, the Brazilian economy is reaching the limits of consumer-led growth, while the Mexican economy looks set to …
19th December 2012
Growth in Latin America has accelerated in the final months of this year. We reckon that regional GDP is on course to expand by just over 3% y/y in Q4, up from less than 2.5% y/y in Q3. This should mean that Latin America grows by around 3% this year. But …
14th December 2012
Chile’s economy is currently in a sweet spot between strong growth and low inflation, and we do not expect any moves in interest rates in the near term. But to the extent that rates are changed next year we continue to believe that cuts are more likely …
13th December 2012
As the dust settles on the latest twist in Argentina’s sovereign debt debacle, attention has turned to 2013 and the possibility of a fresh default. This remains a significant risk. But while a default would not trigger an economic collapse, as happened in …
12th December 2012
Venezuelan economic policy looks set to remain in limbo until the future of the President Hugo Chávez is resolved. Devaluation of the bolivar, which we had expected early next year, may be delayed, while renewed speculation that the opposition will edge …
10th December 2012
Peru kept interest rates on hold at 4.25% last night after a fall in food inflation brought the headline rate down to target for the first time since mid-2011. Looking forward, with the scope for further falls in food inflation now limited and domestic …
7th December 2012
After a decade of underperformance, we believe that growth in Central America will start to outpace that of South America over the coming years. Part of the reason for this is the changing relationship with China, where lower commodity demand and a …
6th December 2012
Fears about the looming fiscal cliff have caused US businesses and households to defer spending plans, in the process contributing to the recent slowdown in the Mexican economy. But with an abrupt fiscal tightening in the US likely to be averted, the …
5th December 2012
The new President of Mexico, Enrique Pena Nieto of the PRI, has continued to demonstrate an appetite for the kind of reforms that should help to raise economic activity over the medium-term. We expect potential growth to rise towards 4%. But overcoming …
4th December 2012
Brazilian industry should continue to grow over the coming months, but the current pace of expansion is unlikely to be maintained. Tax breaks on motor vehicles are due to expire, while the economy more generally is reaching the limits of consumption-led …
Today’s disappointing third quarter GDP data suggest that despite substantial policy stimulus the Brazilian economy is struggling to get going. We expect growth to remain lacklustre over the next year. … Brazil: Q3 GDP reinforces limits of …
30th November 2012
The sharp pick-up in Chilean manufacturing growth in October gives a misleading impression of the true health of local industry. What’s more, to the extent that there has been a rebound in manufacturing this year, it has been concentrated in processed …
29th November 2012
The decision by Brazil’s central bank to keep interest rates unchanged at a record low of 7.25% was expected, but the accompanying statement supports our view that they will remain at their current low until 2014. In fact, to the extent that there is any …
Latin America appears to be enjoying an end of year growth spurt. We estimate that regional GDP growth accelerated to around 3% y/y in Q3, from a three-year low of 2.5% y/y in Q2. What’s more, growth is on track to accelerate to around 3.5% y/y in Q4. …
28th November 2012
