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Reforms in Chile that allow households to withdraw some of their pension savings may help to boost the economic recovery over the next year. But the way in which the reform was passed adds to the sense that public pressure will result in a higher social …
29th July 2020
The push by Brazil’s government to change the tax system provides a welcome sign that the government’s reform agenda is still progressing, despite the political infighting caused by the handling of the coronavirus crisis. If implemented, the main benefits …
22nd July 2020
The struggles in Mexico’s industrial sector suggests that GDP fell by around 20% q/q in Q2. And the weak prospects for the sector will dampen Mexico’s economic recovery over the coming quarters. Having collapsed in April, Mexico’s industrial production …
15th July 2020
The debt restructuring deal provisionally agreed between Ecuador’s government and a group of its creditors would, if implemented, ease near-term pressures on the public finances. But we are more pessimistic on its potential to help Ecuador achieve debt …
13th July 2020
After blowing out in April, budget deficits in Latin America remained wide in May. And while a pick-up in economic activity should help tax revenues to recover and social welfare spending to ease over the second half of the year, the slow pace of the …
8th July 2020
The latest surveys and high-frequency data suggest that Latin America’s economic recovery finally started to firm up in June. But it is still lagging other EM regions – and Chile’s recovery is yet to get going. After a raft of disappointing economic news, …
6th July 2020
The decision by the Colombian central bank to slow the pace of easing from 50bp to 25bp at last night’s meeting suggests that the rate-cutting cycle is approaching its conclusion. We remain comfortable with our forecast for two more 25bp cuts in the …
1st July 2020
Peru’s economy appears to be suffering one of the largest economic hits of any country from the coronavirus, which is likely to spur further policy easing. With short-term interest rates essentially at zero, further monetary loosening would initially …
18th June 2020
The statement from yesterday’s Brazilian central bank meeting poured cold water on expectations in the market that the Selic rate would be cut further from its current level of 2.25% to as low as 1.00-1.50%. It seems that policymakers will consider only …
The decision by Chile’s central bank to leave its policy interest rate unchanged at 0.50% was accompanied by a statement which appeared to unveil a QE programme. The finer details will be fleshed out in the coming days but, along with a recently announced …
17th June 2020
Most policymakers in Latin America are easing lockdowns even though the region is now the epicentre of the coronavirus pandemic. This may be less economically damaging than keeping stringent restrictions in place for longer, but the economic outlook in …
16th June 2020
Our Taylor Rules suggest that monetary easing cycles have further to run in Brazil, Mexico and Colombia, and we have pencilled in additional interest rate cuts in all three countries. Moreover, monetary policy across the region is likely to be looser than …
11th June 2020
Governments in Chile and Peru should be able to live comfortably with a jump in their public debt-to-GDP ratios this year. Those in Colombia, Mexico and, to a greater extent, Brazil will struggle. The first port of call will probably be renewed austerity, …
9th June 2020
The recent progress in talks between Argentina’s government and bondholders suggests that a debt restructuring deal is increasingly likely. However, we are sceptical of the IMF’s view that the government’s latest offer would restore public debt …
4th June 2020
The latest activity data suggest that stringent lockdowns are causing especially deep falls in GDP in Peru and Argentina. But with the region as a whole struggling to contain outbreaks, and limited scope for looser policy, the economic recovery is …
3rd June 2020
Q1 GDP data from Peru suggest that its lockdown is having a bigger impact on activity than measures elsewhere in Latin America. And with new infections in Peru surging in recent weeks, we are revising down our estimate for the fall in GDP this year from …
22nd May 2020
Barring an eleventh hour deal out of the blue, Argentina’s ninth sovereign default will be confirmed on Friday and, while this event is unlikely to surprise many in the markets, it will up the ante on debt restructuring talks. For our part, we think there …
21st May 2020
The continued rapid spread of the coronavirus through Brazil means that the economy will pull out of its slump more slowly than in many other emerging markets. And with the crisis challenging the government’s stability, the risks are skewed towards …
20th May 2020
The weaker-than-expected Q1 GDP figure, coupled with signs that Q2 is shaping up to be worse than we had initially thought, has prompted us to revise down our estimate for the fall in Colombian GDP this year. We now expect a contraction of 7.0% …
19th May 2020
Colombia’s public debt ratio will rise sharply this year and we disagree with the consensus view that it will fall back from 2021. This is likely to limit any recovery in the Colombian bond market over the coming years. The hit to Colombia’s fiscal …
14th May 2020
One major difference between Argentina’s current crisis and the historic 2001/02 episode is that the hit to private sector balance sheets should be smaller. So even though the coronavirus will cause a steep contraction in GDP this year, we don’t expect a …
11th May 2020
The Brazilian central bank’s 75bp cut in the Selic rate last night and the dovish tone of the accompanying statement has prompted us to pencil in a further 50bp of cuts (to 2.50%) in the coming months. Elsewhere, the Chilean central bank gave little away …
7th May 2020
The collapse in the confidence surveys in Brazil and Mexico last month point to a contraction in activity that exceeds that experienced in each economy during the Global Financial Crisis. And with coronavirus cases still increasing sharply, this month …
5th May 2020
The statement accompanying the Colombian central bank’s decision to cut the policy rate by 50bp to 3.25% left the door open for more easing. Given the scale of the economic hit that we expect, the policy rate will likely be lowered by at least an …
1st May 2020
Latin American banks are generally in good shape, but the sheer scale of the fall in output and limited policy responses to protect incomes in parts of the region mean that the rise in bad loans could be much bigger than it was during the Global Financial …
29th April 2020
Brazil’s economy is better placed to withstand a twin political and economic crisis than it was during the Dilma impeachment of 2015-16. But the brewing political mess could leave long-lasting damage if it prevents policymakers from acting quickly enough …
27th April 2020
The plunge in oil prices is yet another drag on Mexico’s freefalling economy, and may hasten a move by Pemex to restructure its external debts. The government’s lacklustre response to the economic crisis is forcing Banxico to do the heavy lifting to …
22nd April 2020
The Argentine government’s aggressive proposal to restructure its international bonds entails over $40bn in debt relief, which would go some way to restoring public debt sustainability. However, there is a significant risk that negotiations between …
17th April 2020
Our oil price forecasts are consistent with a 30% drop in Pemex’s revenues this year, which suggests the firm will need additional state support to service its large debts. However, with the coronavirus crisis intensifying, we’re not convinced that …
16th April 2020
With the Central Bank of Chile’s policy rate at its effective lower bound, we think that its next easing measure would be a quantitative easing programme aimed at flattening the long end of the yield curve. Chile’s central bank has eased policy …
8th April 2020
Last month’s survey data for Brazil and Mexico don’t capture most of the impact of the ramping up of social distancing measures in the second half of March, but they still suggest that both economies are heading towards deep recessions. Indeed, the …
2nd April 2020
Chile’s central bank suggested that, having cut its policy rate to 0.5% yesterday, rates will remain at this low level for an extended period of time. But given the scale of the economic hit from the coronavirus, we think that the policy rate will, …
1st April 2020
Policymakers in Peru and Chile have been quick to introduce economic policy and containment measures in response to the coronavirus, but peers elsewhere – particularly in Brazil and Mexico – have made less progress. This increases the risk that regional …
31st March 2020
The cost of the coronavirus will push Brazil’s public debt ratio up sharply this year, to about 90% of GDP, and policymakers will have their work cut out to stabilise the debt trajectory in the following years. One increasingly likely policy response is …
30th March 2020
Mexico’s economy is likely to suffer a similar fall in output this year as it did during the Tequila Crisis and the Global Financial Crisis. Despite its reticence, the government will ultimately have to do much more to prevent this from causing a sharp …
25th March 2020
The turmoil in Latin American currency markets will push up inflation, particularly in Brazil, Mexico and Colombia, and it already appears to have resulted in strains in corporate bond markets. One consequence is that the region’s central banks may not be …
23rd March 2020
The Brazilian central bank’s (BCB’s) statement accompanying last night’s decision to cut the Selic rate by 50bp was surprisingly cautious and suggested that further easing isn’t on the cards. With the effects of the coronavirus on Brazil’s economy likely …
19th March 2020
Financial conditions have generally tightened more in Latin America (particularly Mexico) than in the rest of the emerging world in recent weeks. This presents another reason to think that activity will weaken dramatically in the coming months, alongside …
18th March 2020
The fall in oil prices has increased default risk in Ecuador. But given the government’s track record of fiscal austerity and the possibility of further multilateral financial support, the likelihood of imminent default seems to be lower than markets are …
11th March 2020
The latest fall in oil prices will aggravate Venezuela’s crisis and increase the risk of a sovereign default in Ecuador. Elsewhere, there is likely to be a hit to growth in Mexico and Colombia. And weaker currencies in both countries will take interest …
9th March 2020
The Brazilian real has fallen to a record low and, while our central view is that it will recover some lost ground in the second half of the year, it will remain much weaker than most currently anticipate. The real has now weakened by 12% against the …
5th March 2020
The spread of the coronavirus has prompted us to revise down our forecasts for the global economy . This Update sets out the revisions to our views for Latin America in more detail. Policymakers generally have limited scope to respond, but we have …
3rd March 2020
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
The IMF’s (belated) announcement that Argentina’s public debt is “unsustainable” removes any doubt that private bondholders will need to stomach large haircuts in a restructuring. But investors are unlikely to accept those anytime soon, and we think that …
20th February 2020
Latin American dollar bonds have performed relatively well since fears related to the coronavirus started to weigh on the region’s financial markets. But if commodity prices and currencies in the region remain weak, dollar bond spreads are likely to widen …
11th February 2020
The Brazilian government’s plans to enshrine full central bank independence in law would help to both keep longer-term inflation expectations low and bring down real interest rates. This adds to the reasons to think that local currency bond yields will …
6th February 2020
The statement accompanying the Brazilian central bank’s meeting last night gave a clear steer that the easing cycle is now over. With growth likely to stay weak and inflation low, we expect that the Selic rate will be left unchanged for much longer than …
The province of Buenos Aires could feasibly default on a $250mn payment on Wednesday. In this Update , we answer three key questions about the current situation, the possible outcomes for Argentina’s largest province, and the implications for the …
3rd February 2020
Mexico dodged another technical recession in Q4, we think that the weakness seen in the later months of last year will persist into 2020, causing growth to fall far below consensus expectations. Provisional figures released today showed that Mexico’s …
30th January 2020
We expect that Chile’s central bank will cut interest rates later this year, and that this will push local currency bond yields down over the next 12 months. But with the demands of protestors likely to result in looser fiscal policy and a larger rise in …
29th January 2020