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The latest COVID-19 outbreaks in Latin America have passed their peak and the near-term outlook is improving. But, with the probable exception of Chile, the latest developments reinforce the message that the threat of renewed outbreaks will continue to …
18th May 2021
The statement accompanying the Banxico Board’s decision to keep the policy rate at 4.00% suggests that policymakers’ concerns about inflation risks are growing, but it doesn’t change our view that they will keep rates unchanged throughout this year and …
14th May 2021
Recent protests have pushed Colombia’s government away from the fiscal reforms that are needed to reduce the public debt ratio in the coming years. It’s therefore likely that the sovereign will lose its investment grade rating, which will keep local …
10th May 2021
The statement accompanying Brazil’s central bank meeting, at which it raised the Selic rate by 75bp to 3.50%, was more hawkish than the previous one. While we doubt that the tightening cycle will go as far as most expect, the risks to our forecast for a …
6th May 2021
The third round of pension withdrawals in Chile will help to boost its economic recovery in the near term, but is unlikely to be as impactful as the previous two. The broader concern is that it signals a shift away from pragmatic policymaking, which may …
29th April 2021
Worsening virus outbreaks and tighter lockdown measures are weighing on economic recoveries across Latin America, particularly in Brazil and Chile. Rapid progress with vaccinations may allow Chile’s economy to turn a corner before long, but the rest of …
15th April 2021
The surprising victory for conservative Guillermo Lasso in Ecuador’s presidential election increases the chances that public debt will be put onto a sustainable path, and will probably boost the country’s sovereign dollar bonds in the near term. …
12th April 2021
While Chile is currently battling with a severe wave of virus cases, we remain cautiously optimistic about the resilience of the economy in Q2, and the prospect of a vaccine-related boost to output over the second half of this year. As a result, we are …
8th April 2021
The unanimous decision by Banxico’s Board to keep its policy rate at 4.00% is a clear signal that its easing cycle is done and dusted. While this indicates a cautious shift at the central bank, we think that investors have gone too far in expecting that a …
26th March 2021
The Colombian government’s shift away from its austere fiscal stance will lead to higher public debt and, more likely than not, a loss of its sovereign investment grade rating. But, from an economic perspective, this is probably a price worth paying to …
11th March 2021
The annulment of left-wing former President Lula’s criminal convictions has significantly increased the likelihood of a looser fiscal stance, which could put Brazil’s public debt back onto an unsustainable path. The central bank is more likely to hike …
9th March 2021
The growing strains in Brazil’s health system caused by the latest COVID-19 outbreak are likely to result in a further tightening of containment measures in the coming days, hitting the economic recovery. Pressure for more fiscal support is likely to …
2nd March 2021
The strong Q4 GDP data for Peru suggests that the economy was heading into 2021 with significant momentum. And while there are growing downside risks from rising COVID-19 cases and a politically contentious vaccine programme, we’re still more upbeat than …
23rd February 2021
The Brazilian president’s decision to sack the Petrobras CEO last Friday points to greater government intervention in the economy and could be a prelude to a looser fiscal stance too. This suggests that the country’s financial markets are likely to remain …
22nd February 2021
It’s unlikely that Colombia’s government will achieve its lofty fiscal targets over the coming years, which may prompt a loss of its investment grade rating – an outcome that is not fully priced into financial markets. But a bigger concern from an …
18th February 2021
The discussion in Brazil around extending emergency fiscal support reinforces our view that the government will ultimately cast aside the spending cap. That could put the public debt trajectory onto an unsustainable upwards path and, were that to happen, …
17th February 2021
The unanimous decision by Banxico’s Board to cut its policy rate by 25bp, to 4.00%, suggests that policymakers are more dovish than we had thought. But the initial market reaction – significantly more monetary easing has been priced in – looks overdone. …
12th February 2021
Chile is motoring ahead in Latin America’s vaccine race and it may be on course to start lifting stringent lockdown measures by mid-Q2. Other countries may follow suit in Q3, which feeds into our above-consensus GDP growth forecasts for most economies in …
11th February 2021
The latest high-frequency and survey data suggest that the region’s economic recovery slowed in January, with Colombia seemingly faring worst. That said, the early signs are that the economic fallout from second waves of the virus hasn’t been as bad as …
4th February 2021
There seems to be little appetite for harsh IMF-mandated fiscal austerity among the leading candidates in Ecuador’s presidential election this week. The public finances will therefore remain in dire straits, and sovereign default risks will stay high, …
2nd February 2021
The Brazilian central bank’s decision to remove its forward guidance at last night’s meeting indicates that Copom is preparing the ground to raise interest rates. But we doubt that policymakers will deliver the aggressive tightening cycle that most …
21st January 2021
Brazil was Latin America’s economic outperformer last year, but the outlook for this year is increasingly challenging and we expect that the economy will fall behind its regional peers in the coming quarters. We now think that GDP will expand by 3.0% over …
20th January 2021
The pandemic has created fertile ground for populists to win presidential elections in Ecuador, Chile and Peru this year. That would have the biggest adverse market reaction in the former, and could lead to medium-term concerns about policymaking in the …
7th January 2021
In typically conservative fashion, Banxico’s left its policy rate at 4.25% despite the weakness of inflation and the deteriorating near-term outlook. However, the dovish statement reaffirms our view that there will still be one more 25bp rate cut in this …
17th December 2020
Latin America will be glad to see the back of 2020, although 2021 will hardly be plain sailing. In general, the hangover from weak public finances will hold back the region’s economic recovery relative to others in the emerging world, suggesting monetary …
10th December 2020
The statement accompanying the Brazilian central bank’s decision (to keep the Selic rate at 2.00%) suggests that it is starting to consider interest rate hikes. But we think the shift towards monetary tightening will be much more gradual than most …
Given the recent positive vaccine developments, we are revising up our GDP forecasts across the region. Among the major economies, Chile and Mexico are likely to be the biggest beneficiaries while Colombia and Peru will be the smallest. Nonetheless, the …
3rd December 2020
A fresh rise in COVID-19 cases in Brazil and Mexico threaten to derail their recoveries in late-Q4 and Q1. On the flipside, the near-term outlook is relatively bright in Argentina, Peru and Chile. By the end of Q3, Brazil’s economy was relatively close to …
1st December 2020
Argentina’s central bank (BCRA) is running out of FX reserves to prop up the peso and it may soon devalue the currency. Even so, it would take an overhaul of the monetary policy setup, probably under the guise of a new IMF agreement, to prevent a more …
19th November 2020
The communications accompanying the Mexican central bank’s decision to leave its policy rate unchanged at 4.25% suggest that there may still be scope for one more cut in the easing cycle. While it’s touch and go, we think it’s most likely that there will …
12th November 2020
The impeachment of Peru’s president, Martín Vizcarra, has rattled the country’s financial markets and may pave the way for looser (and more populist) fiscal measures in the coming months. Given the country’s strong balance sheet, such policies should have …
11th November 2020
We think that the latest activity surveys for October may be overstating growth in Brazil, although they reinforce the view that its economy remains ahead of Mexico at this stage of the recovery. The recently-released October activity surveys can give us …
3rd November 2020
The result of Tuesday’s US election is unlikely to be as important for Mexico as it was four years ago, with domestic factors remaining key to its bleak economic outlook. However, Biden’s climate change agenda could raise tensions with Brazil, and dampen …
2nd November 2020
The tone of the Brazilian central bank’s statement from yesterday’s meeting (at which the Selic rate was kept at 2.00%) was a little less dovish than the previous one. But it still provides plenty of reason to expect the Selic rate to remain unchanged for …
29th October 2020
The overwhelming vote in favour of rewriting Chile’s constitution will set the ball rolling towards entrenching a larger role of the state in the economy. And it may cause the central bank to adopt a more dovish stance in the medium term. This is likely …
26th October 2020
Latin America’s non-oil economies will see larger benefits than most other countries from China’s rebound. This provides grounds for cautious optimism about the prospects for Chile and Peru. But for the rest of the region, the boost from China will be …
13th October 2020
With new virus cases still high, capital controls more pervasive, and fiscal policy unlikely to stay loose, we are nudging down our Argentina GDP forecasts. We now expect an 11% drop this year and just a 4% rebound in 2021 (previous forecasts -10% and …
23rd September 2020
Rising food inflation in Brazil is likely to remain a cause for concern among politicians over the rest of the year, but with core inflation extremely weak, it’s not going to spook the central bank (BCB). One of the most notable features of the recent …
22nd September 2020
The dovish tone of the Brazilian central bank’s statement from yesterday’s meeting (at which the Selic rate was left at 2.00%) supports our view that the policy rate will remain at its current historic low into 2022. In contrast, most analysts and …
17th September 2020
Votes due this week by Peru’s congress on whether to impeach the president and to censure (remove) the finance minister will likely be close calls and could leave a power vacuum. That said, history suggests that the near-term economic and financial market …
14th September 2020
Chile’s economy is recovering more quickly than we had previously expected and, as a result, we are revising up our 2020 GDP growth forecast to -5.5% (previously -7.0%). The stronger rebound has eased pressure on the central bank to loosen monetary policy …
10th September 2020
The frugal 2021 budget proposed by Mexico’s government underlines policymakers’ fixation about public debt risks and concerns about their credit rating. Meeting policymakers’ new and ambitious targets may prompt a shift to fiscal tightening next year, …
9th September 2020
While the number of new coronavirus cases in Brazil remains extremely high, strains in the country’s health care system have eased significantly in recent weeks, reducing the risk of fresh lockdowns. But by the same token, containment measures are only …
8th September 2020
The latest data suggest that, after one of the world’s steepest economic declines in Q2, Peru’s recovery is already stalling against a backdrop of high and rising new coronavirus cases. But for those willing to squint hard enough, there are some reasons …
2nd September 2020
The completion of a deal to restructure almost all $66.2bn of Argentina’s international sovereign bonds will give the government some much-needed breathing space over the coming years, as will an upcoming $41.7bn local-law FX debt restructuring. However, …
1st September 2020
The latest data suggest that Brazil’s recovery so far has been quicker than we expected, which has prompted us to revise up our 2020 GDP growth forecast to -5.0% (previously -7.0%). However, tighter policy, labour market weakness and the continued spread …
19th August 2020
Headline inflation in Mexico looks set to fall towards 3% over the coming months as both food and core inflation soften. We think that will give Banxico scope to cut its policy rate by an additional 75bp to 3.75% by year-end (previous forecast 4.00%), …
18th August 2020
The 14.9% q/q slump in Colombian GDP in Q2 is not quite there among the worst outturns in the EM world, but it’s not far off. More worryingly, mobility data suggest that the nascent economic recovery that began mid-Q2 may already be stalling. One …
17th August 2020
We expect that Mexico’s current account deficit will narrow, and could even turn to a small surplus, over the rest of the year as a strong goods surplus outweighs weaker remittance inflows. That should help the currency to strengthen over the rest of the …
13th August 2020
The 25bp cut in the Selic rate, to 2.00%, at last night’s Brazilian central bank meeting probably marks the last reduction in the cycle, but the accompanying statement supports our view that rates will remain at rock bottom levels into 2022. The reduction …
6th August 2020