Filtered by Subscriptions: Latin America Economics Use setting Latin America Economics
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
Mexico’s current account deficit is likely to widen over the coming quarters and, while it will remain modest compared with other parts of Latin America, we expect the peso to come under pressure. Mexico’s current account has swung from a surplus of more …
7th November 2022
Colombia’s current account deficit has, somewhat surprisingly, widened this year despite the boost to the country’s terms of trade from high oil prices, and now stands at an alarming level. And the funding of the deficit has shifted towards more volatile …
1st November 2022
The narrow victory for Lula in the second-round of Brazil’s presidential election yesterday has, so far, thankfully not been contested by Bolsonaro. But there’s still likely to be a negative reaction in financial markets when they open later today. The …
31st October 2022
The hawkish language in the statement accompanying the Brazilian central bank’s decision late yesterday, at which it left the Selic rate at 13.75%, reinforces our view that the sharp fall in inflation in the last few months won’t push Copom to cut …
27th October 2022
Environmental policy is one channel through which Brazil’s presidential election has global implications. The country is the single largest source of deforestation in the world and, with deforestation often leading to cattle ranching, Brazil plays an …
17th October 2022
Chile’s central bank (BCCh) became the latest in the emerging world to end its tightening cycle yesterday. But with inflation only likely to fall back towards target in late-2023 and the external position in a fragile state, monetary policy will be kept …
13th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
What Lula could mean for Brazil’s financial markets Investors seem to have taken the prospect of a second Lula presidency positively so far, but we suspect returns from the country’s dollar bonds and equities will disappoint over the next couple of years. …
3rd October 2022
Central banks in Mexico and Colombia delivered further large interest rates hikes yesterday, of 75bp and 100bp respectively, and the backdrop of strong inflation pressures and tighter external financing conditions means that a bit more tightening lies …
30th September 2022
The improvement in government budget positions across Latin America over the past year or so has been driven in large part by temporary factors and is likely to reverse before long. As things stand, this is not a major concern for public finances in …
22nd September 2022
We think a combination of domestic and external factors will push up risk premia in Brazil over the rest of this year. This informs our forecasts that the real will weaken and the country’s bonds will sell off. Brazil’s financial markets appear to have …
8th September 2022
The Monetary Policy Report released by Chile’s central bank today, following on from its larger-than-expected 100bp rate increase to 10.75% yesterday, suggests that its tightening cycle is drawing to a close. But with inflationary pressures still acute …
7th September 2022
The further widening of Chile’s current account deficit in Q2 combined with an increased reliance on portfolio inflows leave the Chilean peso vulnerable to a deterioration in investor risk appetite. We think the peso will remain under pressure and, as a …
24th August 2022
Weakness in the US economy over the coming quarters is likely to result in softer (rather than a collapse in) demand for Mexico’s goods exports as supply constraints fade, but the recovery in the tourism sector will probably grind to a halt and capital …
22nd August 2022
The robust 1.5% q/q rise in Colombia’s GDP in Q2 suggests that the economy’s recovery will be among the strongest in the region this year. Strong growth, alongside upside inflation surprises and the fragile external position mean that the central bank’s …
17th August 2022
Mexico’s central bank (Banxico) hiked interest rates by 75bp, to 8.50%, for a second consecutive meeting yesterday but, amid mounting evidence that the economy is struggling and with inflation close to a peak, we think that the pace of tightening will …
12th August 2022
The appointment of Sergio Massa as head of Argentina’s newly-created economic “superministry” provides some hope that the government will try to stick to its latest IMF deal. But it will be a major challenge to meet the Fund’s targets. And even if …
5th August 2022
The statement to yesterday’s Brazilian central bank meeting, at which the Selic rate was hiked by 50bp to 13.75%, made clear that Copom is more confident that inflation will fall back and also more concerned about the slowing economy. We remain of the …
4th August 2022
We expect the Mexican peso to fall further against the US dollar amid mounting external headwinds. As the dollar has appreciated to multi-decade highs against major developed market currencies, such as the euro and the yen, it has also extended its gains …
15th July 2022
Inflation rose to multi-decade highs in much of Latin America last month and, while it should peak in Q3, headline rates will remain uncomfortably high for some time. Central banks in the region started tightening policy earlier than elsewhere and, …
14th July 2022
Having defied gravity in 2021, this year is shaping up to be much tougher for Chile’s economy and we think that the economy will contract in both Q3 and Q4. Despite the weakening growth outlook, high inflation and a worryingly large current account …
5th July 2022
The news that Argentine economy minister, Martín Guzmán, resigned over the weekend points to growing influence of the Kirchner faction of the government. From an economic perspective, this is likely to lead to a looser fiscal stance that is accompanied by …
4th July 2022
The Mexican central bank’s shift to a 75bp interest rate hike yesterday (to 7.75%) and the hawkish language in the accompanying statement make another 75bp move at the next meeting in August a done deal. And the risks to our end-2022 interest rate …
24th June 2022
The latest Brazilian central bank communications give a strong signal that, when Copom stops hiking interest rates, it will act in a similar way to the end of the last tightening cycle in 2015. The lesson from that period is that rates will be kept high …
23rd June 2022
A threatened strike at Chile’s copper giant, Codelco, could knock as much as 0.3%-pts off quarterly GDP growth for every week that workers are on strike and worsen the country’s balance of payments strains. What’s more, it may not even be enough to give a …
21st June 2022
Left-wing Gustavo Petro’s win in the second round of Colombia’s presidential election is likely to spook investors and trigger a sell-off in the country’s financial markets. We suspect that Petro will still pursue moderate fiscal austerity, but not enough …
20th June 2022
While the Brazilian central bank’s tightening cycle is drawing to a close, the statement accompanying yesterday’s 50bp increase in the Selic rate (to 13.25%) left the door open to additional hikes. With Copom sounding a little more worried about inflation …
16th June 2022
Chile is likely to run a current account deficit of 7% of GDP this year, the widest since 1985. Worryingly, this deficit is being increasingly funded by volatile portfolio inflows, making the economy (and currency) particularly vulnerable to swings in …
13th June 2022
The guidance in the Monetary Policy Report released by Chile’s central bank today, following on from its 75bp rate hike to 9.00% yesterday, suggests that the tightening cycle has a little further to run. We think that double digit inflation alongside …
8th June 2022
The solid 1.0% q/q rise in Brazil’s GDP in Q1, alongside the strength of the recent survey data, reinforce our view that the economy will fare better than most expect this year. However, we still think that Brazil’s growth prospects remain weaker than …
6th June 2022
The solid 1.0% q/q rise in Colombia’s GDP in Q1 suggests the economy came through the Omicron virus wave in good shape and, given the recent surge in oil prices, we expect above-consensus growth of 6.0% this year. That said, a possible victory for …
17th May 2022
Brazil’s central bank has undertaken the most aggressive tightening cycle of any major economy over the past year, but there has been surprisingly little impact on bank lending. And while we do expect credit growth to weaken, we doubt that it will …
12th May 2022
The communications following the Brazilian central bank meeting yesterday, at which the Selic rate was hiked by 100bp (to 12.75%), confirm that the tightening cycle is nearing an end. But even so, with inflation set to remain firmly in double digits over …
5th May 2022
The sharp rally in the Brazilian real against the US dollar since the start of the year has shown tentative signs of ending, and we think that it will weaken a bit through the end of 2022. The Brazilian real has appreciated by nearly 19% against the US …
14th April 2022
Depending on which activity survey you look at, Brazil’s economy either staged a rapid recovery in March or slowed. A comprehensive look at the latest figures suggests that the latter is more likely. One clearer message is that price pressures remain very …
12th April 2022
Mexican President López Obrador is likely to remain in power after a recall referendum on his position this Sunday, which may embolden him to double down on his interventionist agenda. While a radical shift in policymaking is unlikely, the prospect of …
5th April 2022
One issue the IMF seems to be glossing over in its latest deal with Argentina (the 22 nd in the country’s history) is that the currency looks overvalued. But the adjustment needed to improve the external position and foster stronger growth will aggravate …
30th March 2022
The Monetary Policy Report released by Chile’s central bank today, following on from its 150bp rate increase to 7.00%, suggests that its tightening cycle is winding down to a close. However, we think that high inflation alongside Chile’s growing external …
Yesterday’s unanimous vote by Mexico’s central bank to raise the policy rate by 50bp, to 6.50%, came as no surprise since it had already been revealed by President López Obrador (Amlo) earlier in the day. While we wouldn’t go as far as to say the central …
25th March 2022
History suggests that for an IMF deal to restore market confidence, a credible shift towards policy tightening which delivers positive economic results, alongside favourable external conditions, is needed. While there are currently tentative steps towards …
23rd March 2022
Brazil’s central bank slowed the pace of its hiking cycle with a 100bp hike (to 11.75%) yesterday, but the hawkish tone of the statement suggests that Copom is more concerned about the coming jump in fuel inflation than we had thought. As a result, we …
17th March 2022
Chile’s newly-inaugurated President Boric is inheriting a slowing economy which is likely to slip into a recession this year. But his government will still have to push through significant fiscal tightening to repair the public finances and alleviate …
15th March 2022
We estimate that the impact of higher fuel, food and potentially goods prices triggered by the war in Ukraine will add roughly 1.0%-pt to headline inflation rates across major Latin American economies this year. One key lesson from the past year is that …
10th March 2022
Argentina’s government reached a fresh IMF deal which, assuming it passes through Congress, will lead to a gradual shift towards more market-friendly policies. However, many of the economic assumptions underpinning the agreement seem overly optimistic and …
8th March 2022
The recent surge in oil prices means that Colombia’s twin current account and budget deficits are unlikely to be a major concern over the next couple of quarters. However, it will still require a sustained fiscal squeeze to prevent the public debt-to-GDP …
3rd March 2022
Oil production in Venezuela has been showing signs of life, and there is probably scope for further gains in the near term. But it would require a lifting of sanctions and significant investment over many years to bring production back to levels seen a …
21st February 2022
Persistently high oil prices would bode ill for current account positions in much of Latin America, adding to the existing vulnerabilities in Chile. It would also keep inflation elevated, leading to more aggressive monetary tightening than we currently …
16th February 2022
The second successive 50bp hike by Mexico’s central bank (to 6.00%), in another 4-1 split on the Board, suggests that it is maintaining its hawkish stance under the new Governor Victoria Rodríguez. And with inflation set to remain well above target in the …
11th February 2022
Fixed investment in Brazil rose at one of its fastest rates in the last 50 years in 2021 which, while a positive development, was driven by factors that are unlikely to be sustained. Fixed investment will probably fall back significantly this year, …
10th February 2022