Latin America


Mexico Bi-Weekly CPI (Oct.)

The further rise in Mexico’s core inflation rate to a 12-year high of 5.1% y/y in the first two weeks of October, which contributed to the rise in the headline rate to 6.1% y/y, will add to the growing hawkish sentiment at the central bank. However, given the weakness of the economy, we think the tightening cycle will remain gradual with another 25bp rate hike, to 5.00%, at the next meeting in mid-November.

22 October 2021

Best of the recovery now over

Easing virus outbreaks and the lifting of restrictions boosted recoveries across Latin America in Q3, but growth looks set to slow sharply over the coming quarters. The re-opening boost will soon fade. Fiscal support is, or will be, unwound while sustained above-target inflation will prompt more monetary tightening than most analysts expect. Meanwhile, supply constraints and falling commodity prices are becoming headwinds to the regional recovery too. So, having beaten expectations in recent months, the pace of the regional recovery is now likely to disappoint. The spectre of more populist policymaking will keep public debt concerns high, particularly in Brazil, putting local financial markets under pressure.

19 October 2021

The fiscal risk of rising rates, Mercosur tariff cuts

Central banks were once again in the spotlight this week after the supersized 125bp rate hike in Chile, but one issue that is often overlooked is the damaging impact of rising interest rates on public finances across the region. Brazil is particularly vulnerable on this front, and may resort to financial repression over the medium term to alleviate debt risks. Otherwise, an agreement to cut Mercosur's common external tariff is a positive step towards liberalisation but, as always, domestic politics could be a hurdle for further progress.

15 October 2021
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Car woes to weigh on recoveries in Mexico & CEE

The supply constraints that have hit global vehicle output have probably reduced the level of GDP by a modest 0.1-0.2% in most EM auto producers, but some countries like Czechia, Hungary and Mexico have suffered much bigger blows. And the drag from vehicle production is likely to persist for some time yet.

Mexico Industrial Production (Aug.)

The stronger-than-expected 0.4% m/m rise in Mexico’s industrial production in August suggests that the economy may have held up better than we had previously anticipated in Q3. But, under the surface, there are still clear signs of weakness in the key auto sector which are likely to persist in the coming months, keeping a lid on the overall economic recovery.

Castillo moderates, Amlo’s intervention & ailing autos

President Castillo’s cabinet reshuffle in Peru this week points towards more pragmatic policymaking which, while a possible headwind to near-term growth, should boost Peru’s medium- to long-term economic prospects. On the flipside, Mexico's President López Obrador (Amlo) is once again trying to increase his grip on the energy sector which may deter private investment and weigh on the economy there. Finally, the latest data suggest that global shortages are continuing to hit auto production while also adding to price pressures across the region, and this trend may have further to run.

Mexico Consumer Prices (Sep.)

The rise in Mexico’s headline and core inflation to 6.0% y/y and 4.9% y/y in September adds to our view that the central bank’s tightening cycle has much further to run. We expect a further 125bp of rate hikes, from 4.75% now to 6.00% in Q2 2022.

7 October 2021

Five reasons why Mexico’s recovery will disappoint

There are five key headwinds to Mexico’s economy, including high inflation and shortages in the auto sector, which suggest to us that the recovery will disappoint expectations from here. We now forecast below-consensus GDP growth of 6.0% in 2021 and 2.8% in 2022 (previously 6.5% and 3.5%). This feeds into our view that Banxico will end its tightening cycle sooner than investors currently anticipate.

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