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Contrary to claims by some commentators, we think that tighter fiscal policy has a key role to play in ensuring that Brazil meets its current inflation/inflows challenge. Indeed, we would go as far to say that, absent of a drop in commodity prices, …
14th January 2011
We are revising up our forecast for Mexican GDP growth this year. With consumer demand recovering more strongly than we had originally anticipated and the neighbouring US economy set to receive a boost from a renewed fiscal stimulus, we now expect Mexico …
10th January 2011
Policymakers in the region will face three challenges this year: keeping inflation under control, preventing asset price bubbles from building and managing currency appreciation. All are consequences of strong capital inflows. Interest rates will be …
7th January 2011
Last night, the Central Reserve Bank of Peru (BCRP) unexpectedly hiked interest rates by 25bps to 3.25%. With the economy set to grow by 6% this year and the outlook for inflation deteriorating, we now expect rates to end this year at an above-consensus …
Although it is still very early days, Brazil’s new president, Dilma Rousseff, has made tackling the recent pick-up in inflation an immediate priority. But with cuts in public spending now looking likely, it is not clear that this will necessarily require …
5th January 2011
The Central Bank of Chile (CBC) will begin intervening in the currency market tomorrow in a bid to weaken the peso. But while the peso has fallen by 5% against the dollar today, history suggests that intervention is likely to have a comparatively …
4th January 2011
The outlook for Latin America in 2011 is, on the whole, pretty good. We expect almost all countries in the region to grow at around their potential rates next year. But while there are few concerns regarding the pace of growth, worries about its …
21st December 2010
Official GDP data continue to overstate growth in Argentina but there is still no doubt that the economy has experienced an impressive v-shaped recovery. The problem is that growth has been fuelled by excessive policy stimulus, which raises the chances of …
20th December 2010
The Central Bank of Chile (CBC) hiked interest rates by 25bps to 3.25% last night, as expected. But the tone of the accompanying statement was less hawkish than in previous months, reinforcing our view that while further rate hikes are likely, the pace of …
17th December 2010
The incoming administration in Brazil has a historic opportunity to re-balance the policy mix in favour of tighter fiscal policy and looser monetary policy (and a weaker currency). What’s more, there are some, albeit tentative, signs that it will deliver. …
16th December 2010
The outlook for Latin America remains good and, while the developed world will struggle to grow by 2% next year, we expect the region as a whole to grow by 4%. Brazil, Chile, Peru and Colombia will lead the way, while Venezuela will continue to lag well …
14th December 2010
Last night, the Central Reserve Bank of Peru (BCRP) held interest rates at 3.0% for the third consecutive month. Even though the outlook for inflation is deteriorating, currency concerns are likely to temper aggressive interest rate hikes. For now, we are …
10th December 2010
The slowdown in Brazilian GDP growth to 0.5% q/q in Q3, from 1.8% q/q in Q2, should be a shortlived blip and the economy appears to have picked up pace once again in Q4. Looking ahead to 2011, the bigger concern is not so much that the overall rate of …
9th December 2010
Brazilian inflation rose to 5.6% y/y in November – well above the Brazilian Central Bank’s (BCB’s) 4.5% target. But the bulk of the pick-up was driven by food prices and with policymakers at the BCB awaiting the incoming government’s fiscal plan, we …
8th December 2010
Although Brazilian industrial production rose in month-on-month terms in October, the sector has essentially stagnated over the past six months thanks in part to the strong real. With the exchange rate unlikely to weaken significantly until real interest …
2nd December 2010
Strong capital inflows continue to create something of a headache for policymakers in Latin America. On the one hand, growth should remain strong over the coming quarters, while the inflation outlook is likely to deteriorate. But on the other hand, rapid …
29th November 2010
Peruvian GDP growth slowed in Q3, but the outlook remains good. The key challenge for policymakers will be to channel an influx of foreign capital into productive capacity and prevent overheating. By contrast, the outlook for Mexico is less favourable. …
26th November 2010
It has been rumoured in the Brazilian press that Henrique Meirelles will step down as Governor of the central bank (BCB) next year, but that Finance Minister, Guido Mantega, will retain his post under President-elect Dilma Rousseff. While it is too soon …
23rd November 2010
Third quarter GDP data from Mexico were weaker than even we had expected. The economy will probably expand by an eye-catching 5% over the course of this year as a whole, but this has been flattered by huge base effects. The more important point is that …
22nd November 2010
After surprising on the upside in Q2, Brazilian GDP growth appears to have slowed to a paltry 0.3% q/q in the third quarter. The good news is that growth looks likely to accelerate once again in Q4, meaning that the economy will enter 2011 with plenty of …
The Chilean economy has recovered the loss in output stemming from February’s earthquake and is on track to grow by 5.5% both this year and next. By contrast, the outlook for Venezuela remains bleak. … Chilean economy completes its …
18th November 2010
Earlier this week Mexico’s Congress passed the 2011 budget. On the face of it, the planned headline deficit of 0.5% of GDP is small – particularly when compared to the huge budget shortfalls that are likely in the developed world. But the underlying …
The Central Bank of Chile (CBC) hiked interest rates by 25bps to 3.0% last night. The strength of the peso means that rate hikes are likely to remain gradual over the coming months. Accordingly, fiscal policy and macro-prudential measures hold the key to …
17th November 2010
The rally in Latin American equities over the past couple of months has left valuations in most countries looking stretched. Stock markets in the region remain vulnerable to a drop in commodity prices but for now at least inflows are strong and the big …
15th November 2010
Mexican manufacturing, which has so far been the key driver of the economic recovery, appears to have stalled. With demand in key export markets – notably the US – likely to remain extremely sluggish, Mexican industry, and the economy more generally, will …
11th November 2010
Policymakers in some countries have raised the prospect that interest rates may be cut in response to recent rapid currency appreciation. But while we would not dismiss the possibility altogether – and we remain more dovish than most – the outlook for …
10th November 2010
The raft of data released over the past day or so show that inflation across Latin America is accelerating. For now, the pick-up has been driven by food prices. But with growth set to remain strong in much of the region, it appears that core pressures …
9th November 2010
Emerging market economies will continue to grow rapidly over the next few years. But with current account surpluses in most of Asia and among oil producers likely to remain high, this will not be of much benefit to the developed world. What’s more, while …
8th November 2010
The G20 Summit in Korea next week (11th – 12th) will be overshadowed by the fall-out from “currency wars”, hampering any attempt at the improved coordination of policies necessary to help rebalance the global economy. In particular, the US will find it …
5th November 2010
The Chilean economy is growing at a healthy clip and, notwithstanding a sharp fall in copper prices, the risks to our forecast are now to the upside. Interest rates are likely to continue to rise gradually, but fiscal policy also needs to play a part in …
Brazilian industry is well and truly stuck in a rut, due in part to the recent strength of the real. Continued growth in the consumer-facing sectors should keep the recovery from stalling but at the cost of growing macroeconomic imbalances. … Brazilian …
4th November 2010
The outlook for inflation in Peru is deteriorating but the policy response is not straightforward. Interest rate hikes would only serve to increase speculative inflows of ‘hot money’, while fiscal policy is unlikely to be tightened ahead of April’s …
The so-called ‘impossible trinity’ suggests that the only way that governments in Latin America can resist further currency appreciation is to either impose strict capital controls or align monetary policy with the Western world. Neither option is …
3rd November 2010
A raft of measures announced by the Colombian authorities late last week are unlikely to have much impact on the value of the peso. In the absence of a drop in commodity prices, capital inflows are likely to remain strong. We suspect that further measures …
1st November 2010
Continuity is the word in Brazil. After a brief wobble last month, Dilma Rousseff eventually secured the presidency this weekend, defeating Jose Serra in a run-off yesterday. So far as economic policy is concerned, Dilma is unlikely to depart from the …
The prospect of further policy easing in the developed world is stoking fears about asset price bubbles in Latin America. High commodity prices, good growth prospects and comparatively high returns, make the region attractive to investors. As a result, …
28th October 2010
While the death of the powerful former President of Argentina, Nestor Kirchner, is sad news, speculation is mounting that it will lead to a brighter outlook for the economy. It is too soon to tell, but even a small shift towards more market-friendly …
The recent rapid appreciation of the Colombian peso bears all the hallmarks of so-called ‘Dutch Disease’. But while policymakers are rightly concerned about the implications for the competitiveness of non-commodity sectors, there is little they can do to …
25th October 2010
Last night, the Brazilian Central Bank held interest rates at 10.75% for the second consecutive month. Concerns about the strength of the real mean that rate hikes are off the agenda for the foreseeable future. Rather, fiscal policy needs to be tightened …
21st October 2010
The recent influx of foreign capital into Brazil is likely to be sustained over the coming months and quarters. But while this should ensure that the economy continues to grow at a decent pace, there is a risk that rapid inflows eventually prove …
19th October 2010
Policymakers across the region are facing a tricky balancing act. On the one hand, capital inflows are likely to remain healthy over the coming months. Additional liquidity generated by further policy easing in the developed world will be attracted into …
18th October 2010
Last night’s decision by the Central Bank of Chile (BCC) to slow the pace of monetary tightening was driven entirely by currency considerations. Fiscal policy will have to play a key role in managing demand from here on and the risks to our dovish …
15th October 2010
We have nudged up our near-term projections for commodity prices in response to recent rises and as a result have revisited our forecasts for Latin America. Growth is still likely to slow next year, but not by as much as we had previously envisaged. At …
14th October 2010
The Brazilian presidential election is set for a second round of voting on 31st October and the latest opinion polls suggest that it may be a tighter race than many had expected. While Dilma Rousseff is still the favourite, Jose Serra is closing the gap. …
13th October 2010
The Central Bank of Peru’s (BCRP’s) surprise decision to hold interest rates at 3.0% last night adds weight to our view that rate hikes will be gradual. We continue to expect rates to end next year at 4.0%. … Peru: BCRP pause, underlines gradual pace of …
8th October 2010
Although Brazilian inflation accelerated in September, the pick-up was driven by food prices. With the economy now growing at a sustainable rate, we expect the headline rate of inflation to remain at around the BCB’s 4.5% target over the next year or so. …
7th October 2010
September’s IMEF survey brought further evidence that Mexico’s recovery is starting to slow. We expect growth to dip to just 2.5% next year and interest rates to remain at their current record low of 4.5% until 2012. … More bad news on Mexico's …
5th October 2010
Brazil’s presidential election sprang into life yesterday after Dilma Rousseff failed to gain the 50% of votes needed to secure an outright victory in the first round of voting. She remains the favourite but will now face a run-off against Jose Serra, …
4th October 2010
Today’s raft of data brought further evidence that the recent strength of the real is squeezing Brazilian manufacturers. With the Central Bank now much more relaxed about the outlook for inflation than it was a few months ago, interest rates are going …
1st October 2010
Governments in Latin America are becoming increasingly concerned about rapid currency appreciation, and for good reason. For a start, most currencies (with the notable exception of the Mexican peso) now look overvalued. More importantly, however, recent …
30th September 2010
