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The Mexican peso’s relentless rise against the US dollar and most other major currencies is increasingly at odds with macroeconomic fundamentals. We think the peso is vulnerable to an abrupt fall over the coming months if, as we expect, risk sentiment …
25th July 2023
Mexico’s exports have fared well recently and the current account deficit remains small. But a closer look suggests that the strength of the peso is causing dynamics in the balance of payments to worsen. The Mexican peso has been one of the best …
20th July 2023
Table 1 has been updated to include the latest comments and proposals of the candidates. The latest polls ahead of next month’s primaries in Argentina suggest that the country could buck the regional trend by electing a more market-friendly government. In …
19th July 2023
Note: We’ll be discussing macro and market risks around El Niño’s return in a 20-minute briefing on Wednesday, 19 th July. Click here to register. The likelihood of an El Ni ño event over the second half of the year raises the risk that activity is …
13th July 2023
We expect the Brazilian real to reverse its gains against the US dollar by the end of the year as Brazil’s central bank eases policy and risk sentiment deteriorates. Although it has fallen a bit over the past few weeks, the Brazilian real has risen nearly …
6th July 2023
The surge in Brazil’s exports since the start of the pandemic has helped the economy recover more quickly than we and most others had anticipated. And unlike previous spikes in exports, some of the windfall has been saved, which has caused the current …
The somewhat cautious tone of the statement accompanying yesterday’s Brazilian central bank meeting (at which the Selic rate was left at 13.75%) will disappoint those hoping for an interest rate cut at the next meeting in August. But the statement does …
22nd June 2023
The Monetary Policy Report released by Chile’s central bank today alongside the communications to yesterday’s policy meeting have reinforced our view that the easing cycle will commence in July. We expect a cumulative of 200bp of cuts, to 9.25%, this …
20th June 2023
The tightening of labour markets across Latin America in the past year or so has fuelled rapid wage growth in many economies and wage growth is likely to remain uncomfortably high for a while yet. Against this backdrop, even as central banks kick off …
15th June 2023
The latest data suggest that Brazil’s labour market isn’t softening as quickly as we and many others (not least the central bank) had anticipated. That’s keeping wage growth high and, while that may help to support growth in Q2, it will probably deter …
1st June 2023
Note: We’re discussing potential EM equity outperformance, monetary easing and “friend-shoring” in our next EM monthly online briefing on Thursday, 1 st June. Register here to join. Colombia’s very strong post-pandemic recovery has come at the expense of …
25th May 2023
Over the past couple of weeks we have held a series of roundtable discussions with clients across Asia and North America on the outlook for EMs. In this Update we provide our thoughts on the recurring questions that we received, including on China’s …
19th May 2023
Mexico’s central bank held its policy rate at 11.25% at today’s Board meeting, bringing the tightening cycle to an end. But with inflation unlikely to return to target until late-2024, policy will probably stay tighter than most expect over the next …
18th May 2023
Mexico’s economy has put in a decent performance over the past year or so, but we think that most of the factors that have supported robust growth have now run their course. Tight policy and a looming recession in the US mean that the economy is likely to …
17th May 2023
The stronger-than-expected Q1 GDP data from Colombia suggest that the risks to our forecast for the economy to expand by 0.8% over 2023 as a whole are skewed to the upside. That said, there were signs of underlying weakness in the data and we expect the …
16th May 2023
The looming impeachment trial of Ecuador’s president Guillermo Lasso marks a further intensification of the country’s political crisis and suggests that the recent experiment with market-friendly governments is on borrowed time. There are lots of ways in …
10th May 2023
The idea of a new BRICS currency to settle trade or hold in reserves instead of the dollar has been doing the rounds recently. This could be modelled on the IMF’s Special Drawing Rights. But getting India on board with China would be difficult. And if the …
4th May 2023
Brazilian policymakers gave a firm push back against any expectations for imminent monetary easing at yesterday’s central bank meeting, supporting our view that interest rates will be lowered a bit more slowly over the next 6-12 months than most expect. …
The surge in exports from Latin America's major economies in March suggests that the upside risks to our GDP growth and currency forecasts are building. But with advanced economies poised to fall into recession over the coming quarters, China's demand for …
3rd May 2023
The replacement of Colombia’s market-friendly finance minister José Antonio Ocampo with a close ally of President Petro is likely to lead to a sell-off in Colombia’s financial assets when markets open later today. This is especially worrying given the …
27th April 2023
There’s little evidence (so far) that the surge in interest rate is leading to widespread debt servicing problems in Chile’s private sector, but there are pockets of vulnerability in the household sector. Although we don’t expect a wave of defaults in the …
25th April 2023
The Monetary Policy Report released by Chile’s central bank today revealed that policymakers are more concerned about inflation risks than we’d thought. We still think that Chile’s central bank will be among the first to start loosening monetary policy, …
5th April 2023
The historic drought afflicting Argentina will cause a steeper contraction in GDP than most expect this year and intensify balance of payments strains by reducing export earnings to the tune of 2-3% of GDP. That will make it hard to meet the IMF’s …
Central banks in Mexico and Colombia both delivered 25bp hikes yesterday, and hinted that these could be the end of their cycles. But, on balance, we think that the strength of inflation will prompt policymakers in both countries to deliver a final 25bp …
31st March 2023
The new fiscal rule proposed today by Brazil’s finance minister would, if implemented in full, go some way towards stabilising the public debt ratio. But the government has a lot to do convince investors that it can credibly commit to the fiscal …
30th March 2023
The statement accompanying the Brazilian central bank’s decision to keep the Selic rate unchanged at 13.75% yesterday will have disappointed some (not least in the government) that thought global market turmoil and economic weakness might prompt a quicker …
23rd March 2023
While the Credit Suisse rescue might draw a line under that particular institution’s problems, it is clear that confidence in the financial sector overall is still extremely fragile. So regardless of whether more financial institutions run into trouble, …
20th March 2023
A key channel through which emerging markets could be affected by the strains in the global banking sector is if lending by foreign banks falls sharply. On this front, EMs’ vulnerabilities have eased since the Global Financial Crisis. But there are still …
16th March 2023
A preferential rate to facilitate wine exports is the latest addition to Argentina’s myriad exchange rates, but it doesn’t address the fundamental problem that the peso is overvalued. We estimate that the currency needs to fall by around 30% to restore …
15th March 2023
At the time of writing, financial markets appear to be stabilising after the turmoil caused by the collapse of SVB. And it doesn’t look like EMs have suffered large capital outflows or strains in their banking sectors. If this relatively benign scenario …
14th March 2023
Headline inflation in Mexico will continue to fall back over next couple of years, but strong wage growth means that it won’t return to Banxico’s 2-4% tolerance band until late-2024. Against that backdrop, we think the central bank will deliver two more …
8th March 2023
As political risks appear to be largely discounted by investors, we expect the Colombian peso to outperform other major EM currencies over the next couple of years. Although the Colombian peso is broadly unchanged against the greenback so far this year, …
2nd March 2023
The dramatic rise in borrowing costs in Brazil in the past few years appears to be causing debt problems at a growing number of companies. So far at least, there is little evidence of widespread stress and the banking sector looks well placed to deal with …
28th February 2023
The Mexican peso’s outperformance since the start of 2022 has pushed up its valuation substantially, and we think that this leaves it vulnerable to sharp falls against the US dollar if, as we expect, the US economy falls into recession later this year. …
16th February 2023
Inflation across most of Latin America has peaked, but this is mainly an energy story – core price pressures are proving much more persistent. And underlying price pressures are likely to ease only gradually over the coming months, which will keep …
Anecdotal reports and high frequency data suggest that ongoing civil unrest in Peru is beginning to choke off activity at key copper mines. But, if recent history is anything to go by, output can rebound rapidly so long as any closures are brief. The …
15th February 2023
Brazil’s president Lula seems to be on the warpath in his quest for lower interest rates and now has the central bank’s (BCB’s) independence in his sights. Were Lula to get his way, the experience from Brazil in the early 2010s and elsewhere in the …
8th February 2023
The newly-appointed head of the Brazilian development bank, BNDES, takes charge today and is likely to be under pressure to increase lending. But the experience from the 2000s suggests that credit provided by BNDES will do little to alleviate the …
6th February 2023
The suggestion by Brazil’s President Lula that the central bank’s inflation target should be raised is likely to be a bigger concern for the second half of his presidential term (2025-26) than the first half (2023-24). While Lula seems to be motivated by …
2nd February 2023
The statement accompanying yesterday’s Brazilian central bank meeting, at which the Selic rate was left at 13.75%, hinted that interest rates may need to stay at their current high level into next year. We recently pushed back the timing of the first rate …
The minutes to the Colombian central bank meeting last Friday revealed that worries about the growth outlook will bring the tightening cycle to a close soon. We expect the central bank to deliver one final 50bp hike, to 13.25%, at the next meeting in …
1st February 2023
China’s rapid move away from zero-Covid and the resulting rally in commodity prices present upside risks to our GDP forecasts, but we remain of the view that 2023 will be a challenging year for Latin American economies and that growth will slow sharply. …
26th January 2023
Widespread unrest across several regions in Peru could make the central bank’s job of reducing above-target inflation even more difficult while also threating to hamper activity in some of the country’s key industries, such as mining and tourism. Peru’s …
16th January 2023
The implications of the invasion of Brazil’s congress by protestors yesterday are mainly political. But the riots could result in a long-lasting risk premium on the country’s financial assets, particularly if they prompt President Lula to double down on …
9th January 2023
This is part of a series of reports outlining our key macro and market calls for 2023. Click here to view the full series. Our latest EM Outlook can be found here . EMs will experience one of the broadest slowdowns in GDP growth in 2023 since the 1990s. …
15th December 2022
The impeachment of Peru’s controversial (former) left-wing President Pedro Castillo might bring short-term relief to investors, but it does not solve Peru’s governability issues. With policy paralysis here to stay, business confidence and investment are …
8th December 2022
The statement accompanying the Brazilian central bank’s meeting yesterday, at which the Selic rate was left at 13.75%, made clear that policymakers are increasingly concerned about fiscal loosening when president-elect Lula takes power. This reinforces …
President-elect Lula’s plans to increase spending could raise Brazil’s public debt ratio by an additional 10% of GDP by the end of his presidential term in 2026. And while it seems likely that these plans will get diluted in congress, they still …
6th December 2022
With the global economy headed for recession and commodity prices likely to come off their recent highs, Latin American exports will struggle over the coming quarters. Weakening global growth is also likely to cause risk appetite to deteriorate and large …
23rd November 2022
While Colombia’s President Gustavo Petro initially made a promising start to his tenure, his recent interventionist comments have led to a sharp sell-off in local financial markets. Regaining investors’ trust while navigating the economy through a period …
14th November 2022
