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History suggests that for an IMF deal to restore market confidence, a credible shift towards policy tightening which delivers positive economic results, alongside favourable external conditions, is needed. While there are currently tentative steps towards …
23rd March 2022
While the start of a US Fed tightening cycle has historically sent alarm bells ringing in Latin America, the region generally looks well placed to weather any potential storm this time. Chile may be an outlier, though, given its worrying external …
18th March 2022
Economy slowing but external vulnerabilities growing The 1.8% q/q rise in Chile’s GDP in Q4 kept output well above its pre-pandemic trend but, with the economy now coming back down to earth, there is a growing chance of a recession this year. Meanwhile, …
Brazil’s central bank slowed the pace of its hiking cycle with a 100bp hike (to 11.75%) yesterday, but the hawkish tone of the statement suggests that Copom is more concerned about the coming jump in fuel inflation than we had thought. As a result, we …
17th March 2022
Chile’s newly-inaugurated President Boric is inheriting a slowing economy which is likely to slip into a recession this year. But his government will still have to push through significant fiscal tightening to repair the public finances and alleviate …
15th March 2022
Venezuela: in from the cold? A meeting this week between officials from the US and Venezuelan governments could be the first step towards sanctions being lifted on the country. That would be necessary for Venezuela to rebuild its shattered economy over …
11th March 2022
Solid start to 2022, but challenges ahead The unexpectedly-strong 1.0% m/m rise in Mexico’s industrial production in January suggests the economy came through the Omicron wave in decent shape. That said, the fallout from the war in Ukraine war may hold …
Rising inflation to keep Copom’s tightening cycle going The rise in Brazilian inflation to 10.5% y/y in February will be followed by further increases to more than 11% in the coming months on the back of higher fuel prices. While Copom hinted at its last …
We estimate that the impact of higher fuel, food and potentially goods prices triggered by the war in Ukraine will add roughly 1.0%-pt to headline inflation rates across major Latin American economies this year. One key lesson from the past year is that …
10th March 2022
Rising price pressures may prompt more aggressive tightening The rise in Mexico’s headline inflation to 7.3% y/y in February was mainly driven by a jump in the core rate to 6.6% y/y and the fallout from the war in Ukraine will push inflation up further in …
9th March 2022
Economy off to a poor start to the year The larger-than-expected 2.4% m/m fall in Brazilian industrial production in January almost fully reversed the gains made towards the end of last year. And taken together with weak surveys for February and possible …
Argentina’s government reached a fresh IMF deal which, assuming it passes through Congress, will lead to a gradual shift towards more market-friendly policies. However, many of the economic assumptions underpinning the agreement seem overly optimistic and …
8th March 2022
Rally in commodity prices not all good news The recent surge in commodity prices has given a boost to most Latin American currencies and it is generally seen as good news for the region. But we would caution that not all economies will benefit. Prices, …
4th March 2022
Q4 strength unlikely to last The stronger-than-expected 0.5% q/q rise in Brazilian GDP in Q4 was mainly a result of turnaround in the agricultural sector, which is unlikely to be sustained. And in the meantime, high-frequency indicators for the services …
The recent surge in oil prices means that Colombia’s twin current account and budget deficits are unlikely to be a major concern over the next couple of quarters. However, it will still require a sustained fiscal squeeze to prevent the public debt-to-GDP …
3rd March 2022
The good and the bad from high commodity prices The main economic fallout of the Russia-Ukraine crisis on Latin America will come via higher commodity prices, with oil and grains producers set to benefit. But it will also cause inflation to trend higher …
25th February 2022
The easing of Omicron waves, and loosening of restrictions, across Latin America will have given a lift to recoveries in recent weeks, but the fallout from the Russia-Ukraine crisis presents a fresh headwind to the region. While the recent surge in global …
24th February 2022
Rising inflation means Banxico has more work to do The small rise in Mexico’s headline inflation rate to 7.2% y/y over the first half of February was driven by a jump in core inflation to 6.5% y/y, suggesting the central bank is struggling in its battle …
Rising inflation suggests more rate hikes to come The stronger-than-expected rise in Brazil’s inflation to 10.8% y/y over the first half of February is likely to mean that the central bank’s tightening cycle has much further to run. We expect a cumulative …
23rd February 2022
Oil production in Venezuela has been showing signs of life, and there is probably scope for further gains in the near term. But it would require a lifting of sanctions and significant investment over many years to bring production back to levels seen a …
21st February 2022
Colombia’s recovery: set to lose steam The Q4 national accounts figures out of Colombia this week showed a staggering 4.3% q/q rise in output last quarter, taking GDP back to its pre-crisis trend – making it one of the few EMs in this position (and the …
18th February 2022
Persistently high oil prices would bode ill for current account positions in much of Latin America, adding to the existing vulnerabilities in Chile. It would also keep inflation elevated, leading to more aggressive monetary tightening than we currently …
16th February 2022
Strong end to 2021 but headwinds building The stronger-than-expected 4.3% q/q surge in Colombia’s GDP in Q4 took output back to its pre-pandemic trend, confirming the recovery has been one of the quickest in the region. Although we still think growth will …
15th February 2022
Latin American inflation troubles continue The recent batch of January inflation data across Latin America made for grim reading and, despite the hawkish response by central banks, inflation rates will remain high in the coming months. To recap, there …
11th February 2022
Solid end to 2021 but bumpy road ahead The solid 1.2% m/m rise in Mexico’s industrial production in December was partly driven by a strong rise in auto production as global supply shortages eased. However, Omicron-related disruption will probably cause …
The second successive 50bp hike by Mexico’s central bank (to 6.00%), in another 4-1 split on the Board, suggests that it is maintaining its hawkish stance under the new Governor Victoria Rodríguez. And with inflation set to remain well above target in the …
Fixed investment in Brazil rose at one of its fastest rates in the last 50 years in 2021 which, while a positive development, was driven by factors that are unlikely to be sustained. Fixed investment will probably fall back significantly this year, …
10th February 2022
Rising core inflation to prompt another 50bp hike from Banxico The fall in Mexican inflation to 7.1% y/y suggests that the headline rate has peaked, but the central bank will remain concerned about rising core inflation. As such, we expect another 50bp …
9th February 2022
Brazil and Mexico continuing to struggle While there were some positive signs from the latest activity data for Brazil and Mexico, both economies seem to have started 2022 on the backfoot. The main headline this week was that provisional Mexican Q4 GDP …
4th February 2022
We expect that falls in commodity prices will cause current account positions to worsen across the region this year. While external positions will remain secure in most major Latin American economies, those in Colombia and Chile are an underappreciated …
The statement accompanying the Brazilian central bank meeting yesterday, at which the Selic rate was hiked by 150bp to 10.75%, made clear that policymakers will slow the pace of tightening from here. But with inflation worries still prominent, we think …
3rd February 2022
After slipping into a technical recession at the back end of 2021, the latest surveys suggest that Mexico’s economy remains in a weak spot at the start of 2022 owing to Omicron-related disruption. Preliminary Mexican Q4 GDP data released this week showed …
2nd February 2022
Auto recovery supports rebound in industry A chunky rise in Brazil’s motor vehicle production supported a much stronger-than-expected 2.9% m/m increase in industrial production in December and means that the economy may have just exited from its technical …
Falling into recession The 0.1% q/q fall in Mexico’s GDP in Q4 confirmed that the economy slipped into a recession over the second half of 2021, and we think growth this year will be weaker than most expect. Despite the softness of the economy, we expect …
31st January 2022
The surprisingly hawkish shift on Colombia’s central bank board at Friday’s meeting, when the policy rate was increased by 100bp to 4.00%, suggests that the tightening cycle will be more aggressive than we had thought. We now expect the policy rate to …
Argentina & the IMF: Devil will be in the details The Argentine government’s agreement with the IMF for a new $44.5bn deal is a positive step to improve macroeconomic stability. But, at first glance, the deal seems to be based on rosy economic …
28th January 2022
The announcement by Argentine President Fernández that the government has reached a new agreement with the IMF, the 22nd in their history, will give some relief to international bondholders in the near term. But this is just the start of a long journey to …
The decision by Chile’s central bank to deliver a surprisingly large 150bp rate hike yesterday, to 5.50%, supports our view that the tightening cycle will go further than the path it had previously signalled. That said, we think that the dramatic upward …
27th January 2022
Another 150bp rate hike almost certain next week The stronger-than-expected Brazilian mid-month inflation reading for January, of 10.2% y/y, means that the central bank is on course to hike the Selic rate by another 150bp (to 10.75%) next Wednesday. That …
26th January 2022
Political risk will be a major theme once again in Latin America this year, although recent developments have given cause for cautious optimism. Chilean President-elect Boric’s appointment of Mario Marcel , the current Central Bank Governor, as the next …
25th January 2022
Inflation peaked but will remain stubbornly high The fall in Mexico’s inflation to 7.1% y/y in the first two weeks of the year gave the first sign that inflation has peaked and we think that it will continue to trend lower over the coming months. That …
24th January 2022
Chile: Boric appoints ‘Super Mario’ Marcel President-elect Boric’s announcement today that (now outgoing) Governor of the Central Bank, Mario Marcel, will be Chile’s next Finance Minister is a clear signal that his government will pursue prudent fiscal …
21st January 2022
Overview – The regional recovery will lag further behind others in the emerging world in the coming years. The Omicron-led surge in virus cases presents a risk to growth in the near term, but we suspect that the economic hit will be small. Larger drags …
20th January 2022
Brazil: Early clues on Lula’s policy stance There have been some recent clues that Brazil’s former left-wing president Lula, the current favourite to win October’s election, may not be as radical as some fear. But there is still a clear risk that he would …
14th January 2022
Although the Argentine government and the IMF do not fully see eye-to-eye, there have been signs of progress in negotiations and we think it’s most likely that they will sign a fresh agreement within the next few months. That would probably give some …
12th January 2022
Industrial woes continue The disappointing 0.1% m/m fall in Mexican industrial production in November raises the chances that the economy slipped into a recession last quarter. And while auto production looks to have rebounded strongly in December, the …
11th January 2022
Inflation fall won’t stop Copom from hiking further The fall in Brazilian inflation to a four-month low of 10.1% y/y in December confirmed that the recent food and energy inflation spikes are starting to unwind. But with the headline rate still far above …
We think that Latin American GDP growth will slow by more than most expect in 2022, while inflation will also drop more a bit more quickly than the consensus anticipates. This feeds into our relatively dovish monetary policy views across the region. …
10th January 2022
Omicron taking hold in Latin America New virus cases have jumped almost five-fold in Latin America over the past two weeks as the contagious Omicron variant is taking hold, but we suspect that the economic fallout will be limited. Caseloads are …
7th January 2022
Strong inflation to prompt rate hikes in Mexico and Chile Inflation in Mexico stabilised at 7.4% y/y in December and, with price pressures likely to remain strong, we expect Banxico to deliver another 50bp rate hike, to 6.00%, at its meeting in February. …
