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Inflation appears to have finally peaked for emerging markets – but how quickly will price pressures now ease, and what will that mean for the 2023 outlook? In December's monthly dive into the big stories in EM macro and markets, economists from across …
24th November 2022
Stronger core inflation will support the hawks at Banxico The further fall in Mexico’s headline inflation rate, to 8.1% y/y, in the first two weeks of November was driven by easing non-core price pressures. But core inflation picked up, which will …
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
Lula’s spending cap exemption plans spook markets Brazil’s financial markets remained on the backfoot this week as the Lula team stepped up its fight against the spending cap. And, while officials have since tried to reassure investors, the developments …
18th November 2022
Teetering on the brink of recession The 1.2% q/q contraction in Chile’s economy in Q3 was even steeper than expected and we think that the downturn has further to run – our forecasts is for the economy to contract by 1.3% over 2023 as a whole. Meanwhile, …
Data released over the past month or so suggest that most economies across the region fared well in Q3. GDP growth in Mexico and Colombia came in well above expectations and hard activity data from Brazil point to another solid expansion last quarter too. …
17th November 2022
Strong Q3 to be followed by sharp slowdown The stronger-than-expected 1.6% q/q expansion in Colombia’s GDP in Q3 took output further above its pre-pandemic trend and means that Colombia is on course to be a regional outperformer in 2022. That said, there …
15th 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
Lula starting to show his true colours? Developments this week poured cold water on the rally in Brazil’s financial markets that followed Lula’s election victory. Comments from Lula himself yesterday suggesting that higher spending should be prioritised …
11th November 2022
Another 75bp hike, but end of tightening cycle on the horizon Mexico’s central bank delivered a fourth consecutive 75bp interest rate hike, to 10.00%, today but, with inflation now past its peak and the economy likely to slow sharply over the coming …
10th November 2022
Further fall in inflation won’t stop Copom from keeping policy tight The fourth consecutive decline in Brazil’s inflation rate, to 6.5% y/y in October, will be welcomed by policymakers at the central bank. That said, inflation is still well above target …
Softer inflation gives Banxico food for thought, but 75bp hike on the cards Mexico’s headline inflation rate came in at a weaker-than-expected 8.4% y/y in October and, while this is unlikely to prevent Banxico from delivering another 75pb interest rate …
9th 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
Lula’s early moves: tacking to the centre? Lula emerged victorious in Brazil’s presidential election last Sunday and political developments since then will have reassured investors. While President Bolsonaro didn’t concede defeat, he has accepted the …
4th 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
Industry a drag on growth in Q3 The 0.7% m/m decline in Brazilian industrial production in September suggests that the sector made a negative contribution to GDP growth over Q3 as a whole. With other sectors faring surprisingly well, Brazil’s economy …
Economy performed well in Q3, but tougher road lies ahead Provisional GDP figures show that Mexico’s economy expanded by a stronger-than-expected 1.0% q/q in Q3, but a recession in the US alongside tight fiscal and monetary policy mean that the economy …
31st October 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 …
The second-round of Brazil’s presidential election on Sunday is going down to the wire. While Lula came top in the first-round vote earlier this month, the key story was that incumbent president Jair Bolsonaro received more support than had been expected. …
28th October 2022
Brazil’s economy has a deep-seated problem of low productivity growth and it’s hard to see either presidential candidate undertaking the reforms needed to lift investment, strengthen competitive forces and tackle skills shortages. As a result, with the …
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
Brazilians head to the polls on Sunday to decide who’ll become the country’s next president in a heated run-off election between incumbent Jair Bolsonaro and his left-wing rival Lula. Lula is still the front runner, but the race is looking much tighter …
25th October 2022
Copom to be relieved by inflation drop The drop in Brazilian inflation to an 18-month low of 6.9% y/y in the first half of October reinforces the view that the central bank’s tightening cycle is at an end. Even so, the strength of inflation in many core …
Inflation drops back, but another 75bp hike still on the cards Mexico’s mid-month inflation reading of 8.5% y/y in October was a bit weaker than expected and, while core inflation edged up again, this was mainly driven by food products. With the Fed still …
24th October 2022
Chile three years after the social uprising This week marked the third anniversary of a large wave of protests in Chile which, while ostensibly triggered by a rise in metro ticket prices, marked a watershed moment in Chile’s modern history and left …
21st October 2022
Overview – Latin America is running into a growing set of headwinds, from the global recession to lower commodity prices to tight policy at home. We expect recessions in Chile and Argentina, and our growth forecasts across most of the region for 2022-23 …
19th 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
Central banks bringing things to a close This week, Chile ’s central bank became the latest in the region to end its rate hiking cycle. The statement accompanying its 50bp policy rate hike, to 11.25%, on Wednesday mentioned that the policy rate “has …
14th 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
Industry soft and struggles set to continue Mexico’s industrial sector stagnated in August as weakness in the manufacturing, construction and utilities sectors was only offset by higher mining output. More timely indicators paint a mixed picture but, with …
12th 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
Inflation falls, but central bank will keep rates high for a long time The plunge in Brazil’s inflation rate to 7.2% y/y last month (from 8.7% in August) confirms that the central bank’s tightening cycle has ended. But with some goods and services …
Bolsonaro strong, but Lula still the front-runner The main story in Brazil’s general election on Sunday was the stronger-than-expected performance of Jair Bolsonaro and his right-wing allies, which buoyed the country’s financial markets. The real is up by …
7th October 2022
Inflation seems to have peaked, but Banxico to keep tightening for now Mexico’s headline inflation rate was unchanged at 8.7% y/y in September and will probably start to drop back over the coming months. But it will remain above the upper end of Banxico’s …
Industry a weak spot in Q3 The 0.6% m/m fall in Brazilian industrial production in August wiped out July’s gains and the sector may have been a drag on the economy over Q3 as a whole. That said, the surprisingly strong surveys for other parts of the …
5th 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
Left-wing former president Lula looks most likely to win the second-round run-off presidential vote on 30 th October. But the surprisingly strong performance of President Bolsonaro and his allies on the right in the presidential, gubernatorial and …
All eyes will be on Brazil’s general election on Sunday. Among other things, we’ve written about the implications of the vote for the economy, what lessons to draw from Lula’s previous presidency, and the future of Brazil’s fiscal rules. All of our …
30th September 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 …
Latin American currencies have come under pressure this month which will put further upward pressure on inflation, but the bigger picture is that headline rates are at, or close to, a peak across the region. Indeed, headline rates in Brazil and Peru are …
27th September 2022
Food and energy drag headline rate down further The fall in inflation in Brazil to a 16-month low of 8.0% y/y in the first half of September confirms that the monetary tightening cycle is over. By the same token, the fact that inflation remains very …
Argentina’s second IMF review This week the IMF announced that a staff-level agreement has been reached with Argentina to release a $3.9bn tranche of the $44bn programme, which will help the government to continue external debt repayments (mainly to the …
23rd 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
Stronger inflation & hawkish Fed mean another 75bp hike next week The stronger-than-expected Mexican inflation figure of 8.8% y/y in the first two weeks of September, coming alongside the hawkish Fed decision yesterday, means that we now think Banxico …
The Brazilian central bank’s decision to leave the Selic rate unchanged at 13.75% after 12 consecutive hikes makes it one of the first central banks globally to bring its tightening cycle to an end. Policymakers are likely to turn to interest rate cuts …
The credibility of Brazil’s spending cap – the country’s key fiscal anchor – has been seriously undermined by tweaks and workarounds since the start of the pandemic. And it looks likely that the cap will be weakened further after October’s presidential …
21st September 2022
Colombia: fiscal consolidation vs. inflation The Petro administration’s commitment to address costly energy subsidies is the fiscally responsible thing to do, but it will come at the expense of exacerbating the country’s inflation problem. Fuel …
16th September 2022
Mexico’s 2023 budget proposal suggests that officials intend to stick to their tight policy stance, but the public finances are likely to deteriorate if (as we expect) oil prices fall back and the economy performs worse than officials anticipate. The …
15th September 2022
While Luiz Inácio Lula da Silva (better known simply as Lula), the front-runner in Brazil’s presidential race, has been vague about his policy stance, one common theme from his campaign is nostalgia for his previous presidency of 2003-10. The experience …
14th September 2022
Chile and its constitution: back to square one While the surprisingly strong rejection of Chile’s proposed new constitution in Sunday’s referendum has eased some concerns about a radical shake up of the country’s economic model, the outcome doesn’t put an …
9th September 2022
