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Inflation falls further, just one more hike likely Brazil’s headline inflation rate fell to a 14-month low of 8.7% y/y in August, but hawkish comments from the central bank this week support our view that there will be one final 25bp interest rate hike …
9th September 2022
Industry supported by easing supply constraints Mexico’s industrial sector posted disappointing growth of 0.4% m/m in July as stronger automobile output was partially offset by weakness elsewhere. More timely indicators suggest that, the auto sector …
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
Inflation rise shortens odds of 75bp hike, but we expect Banxico to opt for 50bp The further rise in Mexico’s headline inflation rate to 8.7% y/y in August will strengthen the case for Banxico to deliver a third consecutive 75bp increase to interest rates …
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
Former President Lula holds a commanding lead in the polls ahead of Brazil’s presidential election on 2 nd October. It seems unlikely that he would govern as radically as his party’s manifesto suggests but, even so, neither of the leading candidates seem …
6th September 2022
Brazil: will the consumer surge last? One of the most striking features in Brazil’s Q2 GDP release this week was the stellar performance of household consumption, which rose by 2.6% q/q – a figure bettered only six times in the GDP series’ …
2nd September 2022
Industry starting Q3 on a better footing The 0.6% m/m rise in Brazilian industrial production in July suggests that, while headwinds facing the economy are growing, it started the third quarter in decent shape. Taken together with the robust Q2 GDP …
Chile’s new constitution, which will be put to the people in a referendum this coming Sunday, would usher in sweeping changes to the country’s current economic model. Even if the constitution is rejected, it is clear that Chile is moving towards a larger …
1st September 2022
Strong H1 to be followed by weakness in H2 The stronger-than-expected 1.2% q/q rise in Brazilian GDP in Q2 has prompted us to revise up our 2022 GDP growth forecast to an above-consensus 2.5% (previously 2.0%). And the likelihood of a final 25bp rate …
The region faces a busy political calendar. Chileans head to the polls on Sunday to vote on a new constitution which would usher in sweeping changes to the country’s current economic model. While the latest polls suggest that the charter will be …
30th August 2022
Current account deficits and the pesos’ divergence Current account figures released this week go a long way to explaining the starkly different performance between the Mexican and the Chilean pesos. Data from Mexico showed that, while the current account …
26th August 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
Inflation falling, but interest rates to remain high The further fall in Brazil’s headline inflation rate to 9.6% y/y in the first two weeks of August was mainly due to tax cuts on energy and masks the fact that underlying price pressures remain strong. …
Upward inflation surprise raises threat of another 75bp hike The stronger-than-expected rise in Mexico’s headline inflation rate to 8.6% y/y in the first two weeks of August raises the risk that Banxico pushes through another 75bp interest rate hike at …
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
Lula & the state banks: déjà vu Brazil’s presidential election campaign officially kicked off this week with heated barbs between the leading candidates. On the economic front, one thing that has stood out is front-runner Lula’s focus on the role of …
19th August 2022
Disappointing Q2 likely followed by recession Chile’s economy merely stagnated in Q2 and the chances are high that it will fall into recession over the second half of the year. Meanwhile, current account risks are continuing to build – with the deficit …
18th 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
Colombia’s tax reform Colombia’s President Gustavo Petro was inaugurated last weekend and his economic team was quick to make their mark, presenting a new tax bill to congress. The bill seeks to add COP25trn (1.7% of GDP) to government coffers this year, …
12th 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 …
Industry remains soft Mexico’s industrial sector posted sluggish growth of just 0.1% m/m in June and the data suggest that the first estimate of Q2 GDP growth may be revised down. The backdrop of weakness in the US means that we expect Mexican industrial …
11th August 2022
Inflation fall eases pressure on Copom The sharp fall in Brazilian inflation to 10.1% y/y in July from 11.9% y/y in June was mainly a result of tax cuts on energy; inflation in most other price categories remains extremely strong. Even so, at the margin, …
9th August 2022
Further rise in inflation to prompt another 75bp on Thursday The rise in Mexico’s headline inflation rate to 8.2% y/y in July, coming alongside the stronger-than-expected Q2 GDP figures released in late-July, mean that Banxico is almost certain to hike …
Costing Chile’s new constitution A recent report from Chile’s Centro de Estudios Públicos (CEP) that looks at the fiscal costs implied by the draft new constitution has made a splash this week. It estimates that the total annual cost for the government of …
5th 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 …
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
Broad based weakness in industry The 0.4% m/m fall in Brazilian industrial production in June, taken together with softer surveys last month, provides further evidence that the economy is losing momentum. GDP growth in the second half of the year is set …
2nd August 2022
Big challenges for Argentina’s new “superminister” President Alberto Fernández announced a major cabinet reshuffle yesterday in an effort to tackle the latest economic crisis. One of the casualties of the reshuffle is Silvina Batakis, who had taken over …
29th July 2022
Another solid quarter, but recovery to struggle from here Provisional GDP figures show that Mexico’s economy grew by a stronger-than-expected 1.0% q/q in Q2 and we have nudged up our forecast for GDP growth this year to 2.3% (from 1.8% previously). Even …
Latin American economies held up well in early part of this year, helped by the surge in commodity prices brought about by the war in Ukraine. But there are signs that activity is now weakening. Timely monthly activity indices fell in m/m terms in five of …
27th July 2022
Inflation has peaked, but will remain high The drop in inflation in Brazil to 11.4% y/y in the first half of July provides the first clear sign that inflation has passed its peak and is now on a downwards path. But even so, with the headline rate far …
26th July 2022
Colombia’s gaping trade deficit Recently released trade data showed that, somewhat surprisingly, Colombia’s trade deficit widened in May. This was driven by two factors. First, having jumped in April due to the surge in global energy prices, exports …
22nd July 2022
Further rise in inflation to prompt another 75bp hike The further rise in Mexico’s headline inflation rate to 8.2% y/y in the first two weeks of July means that Banxico is all but certain to deliver another 75bp hike in interest rates, to 8.50%, at its …
Overview – High energy and agricultural prices helped to cushion Latin American economies over the first half of the year, but the second half will be much more challenging. As growth slows, fiscal concerns are likely to come back to the fore. And in the …
21st July 2022
Brazil’s ‘kamikaze’ social transfers Brazil’s fiscal rules took another blow this week after congress approved a constitutional amendment (the so-called ‘kamikaze’ amendment) that will expand social transfers. Spending will increase by 41bn reais, or 0.4% …
15th July 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 …
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
Industry likely to remain weak Industrial production in Mexico rose by a disappointing 0.1% m/m and timely indicators suggest that the sector was even weaker still in June. With growth in the US weakening, we expect industrial activity to remain soft over …
12th July 2022
Argentina: not budging on the peso The UK isn’t the only country suffering tumult sparked by a finance minister’s resignation. Earlier in the week, Argentina was thrown into crisis after Martin Gúzman, the architect of the country’s latest IMF deal, …
8th July 2022
50bp hikes on the cards The increases in inflation in Brazil (to 11.9% y/y) and Chile (to 12.5% y/y) last month set the ground for 50bp hikes in policy rates at their respective central banks’ next meetings (in Chile’s case, next Wednesday). In both …
Multi-decade high inflation to keep Banxico hiking in 75bp steps The rise in Mexican inflation to 8.0% y/y, its highest rate since 2001, will sustain the hawkish shift seen on the Banxico Board at its latest meeting in June. A 75bp hike in the policy rate …
7th 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
Petro picks a moderate The news that Colombia’s President-elect Gustavo Petro has chosen José Antonio Ocampo as his finance minister provides an early sign that Petro will govern as an economic moderate. Mr Ocampo is a well-respected economist, a former …
1st July 2022
High inflation seems to be causing growing unrest in the region, which threatens to be economically disruptive and raise fiscal concerns. Recent protests in Ecuador have hit its oil sector hard, while truck drivers in Peru are about to embark on a strike. …
28th June 2022
Petro gets a frosty reception Gustavo Petro’s win in Colombia’s presidential election has caused tremors in the country’s financial markets. The stock market has fallen by around 7% since the vote while the currency is down by 5% against the dollar. The …
24th June 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 …
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
Inflation surprise seals the deal on a 75bp hike The stronger-than-expected rise in inflation to 7.9% in the first two weeks of June adds to the pressure on Banxico to fight stubbornly strong price pressures. We think Banxico will step up the pace of …
