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Banxico tightening likely to remain gradual despite inflation surge The surge in Mexico’s inflation to 7.05% y/y in the first two weeks of November – the highest since 2001 – was partly a result of unfavourable base effects, but underlying price pressures …
24th November 2021
Overheating in Chile fueling external imbalances Much of the focus on Chile this week has been on the upcoming general election on Sunday and the strength of the Q3 GDP data . But an important development that may have flown under the radar is that …
19th November 2021
The frontrunners in Sunday’s presidential election in Chile, Gabriel Boric and José Antonio Kast, hold different views on the desired size of the state in the economy, but both advocate relatively loose fiscal policy. This would help to support economic …
18th November 2021
Turbocharged recovery to prompt more aggressive hikes The 4.9% q/q surge in Chile’s GDP in Q3 took output not only above its pre-pandemic level but also its pre-crisis trend . The strength of the figures means that we now expect above-consensus growth of …
Fiscal balances have generally improved across Latin America this year (barring Chile and Colombia) but we think that governments in most major economies will struggle to implement the substantial austerity needed to stabilise public debt-to-GDP ratios. …
17th November 2021
Economy roaring back to life The stronger-than-expected 5.7% q/q jump in Colombia’s GDP in Q3 more than offset the setback in Q2, and took output 2.6% above its pre-pandemic level. While the recovery will slow from here, we now expect above-consensus GDP …
16th November 2021
By next year, Brazil’s public sector interest payments could be almost twice as large (at ~8% of GDP) as they were in 2020, making the challenge of stabilising the public debt-to-GDP ratio all the more difficult. A lot of the focus of the implications of …
15th November 2021
Core inflation running hot … Another week, another alarm bell for central bankers in the region. This time it was the turn of the October CPI figures, which showed further increases in Chile (to 6.0%), Mexico (6.2%) and Brazil (10.7%). Global energy …
12th November 2021
The Mexican central bank’s 25bp rate hike, to 5.00%, and the accompanying statement showed little sign that policymakers are likely to follow their peers in Latin America by upping the pace of tightening in response to strong inflation pressures. The …
Auto slump drags down industry The surprise 1.4% m/m drop in Mexican industrial production in September in large part reflects auto sector woes and suggests that the flash Q3 GDP estimate of -0.2% q/q may be revised down. This release adds to our view …
11th November 2021
The ruling Frente de Todos (FdT) coalition is likely to lose some of its power in congress in Argentina’s midterm elections on Sunday. Policymaking could subsequently go in one of two ways. Our baseline scenario is that, with electoral concerns out of the …
10th November 2021
Risk of an even larger rate hike growing The larger-than-expected jump in Brazilian inflation, to 10.7% y/y, last month, coming alongside a rise in inflation expectations and continued fiscal risks, increases the likelihood that Copom ups the pace of …
Another 25bp rate hike on the cards The rise in inflation in Mexico to 6.2% y/y in October paves the way for another rate hike at the central bank’s meeting on Thursday. However, the surprise fall in GDP in Q3 will probably keep the pace of tightening …
9th November 2021
Chile: red-hot recovery starting to boil over Strong September activity (Imacec) data out of Chile this week adds to signs that that the economy is running hot, which will put more pressure on the central bank to take some steam out of the recovery. The …
5th November 2021
We think that the Brazilian real will weaken a bit further against the US dollar over the next year, as fiscal risks and deteriorating terms of trade continue to weigh on the currency. With the exception of the Turkish lira, the real has been the …
4th November 2021
Brazil’s inverted yield curve has raised concerns that the economy may be on the brink of a recession, but it doesn’t have a particularly good track record as a leading indicator for economic downturns in the country. For our part, while downside risks to …
Industry pulled down GDP growth in Q3, likely to continue in Q4 The 0.4% m/m fall in Brazilian industrial production in September suggests that the sector knocked 0.1-0.2%-pts off q/q GDP growth over Q3 as a whole. The latest surveys suggest that …
The latest survey data suggest that GDP growth held up relatively well in Brazil and picked up slightly in Mexico in Q4. In the meantime, Chile’s red-hot recovery is continuing which will keep the central bank’s aggressive tightening cycle going in the …
3rd November 2021
BCB between a rock and a hard place Brazil’s central bank (BCB) can’t win. The further falls in the real after the whopping 150bp hike in the Selic rate on Wednesday suggest that investors didn’t think that policymakers went far enough to allay concerns …
29th October 2021
Poor Q3 and recovery to struggle from here The surprise 0.2% q/q contraction in Mexico’s economy in Q3 was largely driven by lockdown-related disruption to the services sector, which should unwind in Q4 as restrictions have been eased. Even so, we think …
Financial conditions in Latin America have tightened sharply this year, most notably in Brazil and Chile, on the back of aggressive monetary tightening and growing political and/or fiscal risks. With these factors likely to persist, tight financial …
28th October 2021
The Brazilian central bank’s decision to up the pace of tightening to a 150bp rate hike (which took the Selic rate to 7.75%) was a clear response to concerns about a looser fiscal stance. With fiscal risks likely to persist, we now expect a 150bp hike in …
The growing likelihood that Brazil’s government will circumvent its spending cap adds to broader signs that austerity is becoming politically difficult to implement across the region. For instance, Ecuadorian President Lasso recently U-turned on a plan to …
26th October 2021
Copom now likely to hike by 150bp The larger-than-expected increase in Brazilian inflation in the middle of October, to 10.3% y/y, alongside the latest rise in inflation expectations mean that Copom is likely to step up the pace of tightening at its …
The fallout from the Chilean protests two years on This week marked the two-year anniversary of the mass protests in Chile which caused a political risk premium to emerge in local financial markets and the currency. We think that lingering political risks …
22nd October 2021
Inflation to remain stubbornly high in the coming months 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 …
Suggestions that Brazil’s government will raise welfare spending – and circumvent the spending cap in doing so – add to the evidence that there’s little appetite for the long-term fiscal squeeze needed to stabilise the public finances. Taken together with …
20th October 2021
Overview – 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 …
19th October 2021
The fiscal headache from hawkish central banks Monetary tightening cycles have been a hot topic in Latin America recently, and the supersized 125bp rate hike in Chile caught the eye this week. Most of the focus has been on tackling high inflation, but one …
15th October 2021
The multitude of supply shocks hitting Brazil’s economy are likely to keep inflation at 7-10% well into next year and cause the pace of recovery to slow to a crawl in the next few quarters. Overall, we now expect GDP growth of just 1.3% next year, which …
14th October 2021
The surprisingly large 125bp rate hike delivered by Chile’s central bank yesterday, to 2.75%, suggests that it will continue to front-load its tightening cycle to clamp down on high inflation. We now expect a further 225bp of hikes in this cycle, to …
Industrial output grinds higher despite auto weakness 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, …
12th October 2021
Peruvian politics: not so extreme after all President Castillo’s cabinet reshuffle this week points towards more pragmatic policymaking which, while a possible headwind to near-term growth, should boost Peru’s medium- to long-term prospects. The president …
8th October 2021
Inflation jumps but nearing a peak The jump in Brazilian inflation to 10.2% y/y in September was largely a result of the hike in household electricity tariffs last month and, while the headline rate is at – or very close to – a peak, it will remain at …
High inflation to prompt more aggressive hikes The jump in Chile’s inflation to 5.3% y/y in September suggests that the central bank may once again ramp up the pace of its tightening cycle. We now think it is more likely than not that it will deliver a …
The threat of energy shortages looms over Brazil once again. The country’s experience with electricity rationing in 2001/02 offers a useful guide about how the situation may pan out. We estimate that this episode knocked about 1%-pt off GDP growth, added …
7th October 2021
Rising inflation to prompt more rate hikes 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, …
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% …
5th October 2021
Industry dragged on growth in Q3, weakness to persist in Q4 The larger than expected 0.7% m/m fall in Brazilian industrial production in August suggests that the sector probably knocked 0.1-0.2%-pts off q/q GDP growth in Q3. Persistent shortages of …
Mexico & Colombia: pace of tightening to diverge Central banks in Mexico and Colombia raised their policy rates by 25bp yesterday and more rate hikes are in the pipeline in both economies. The pace of tightening will remain gradual in Mexico but, similar …
1st October 2021
Falling new virus cases and the lifting of restrictions have boosted economies across the region in Q3, but the deteriorating external backdrop will put a lid on growth from here. Even with an orderly resolution to the Evergrande saga , a slowdown in …
28th September 2021
Chile and Peru most exposed to Evergrande fears Fears over Evergrande, a highly-leveraged Chinese property developer, rocked global markets earlier this week. Latin American economies are among the most exposed to problems in China’s property sector. In …
24th September 2021
Inflation spike to prompt another large hike in October The increase in Brazilian inflation to 10.1% y/y in the middle of September means that another large hike in the Selic rate at the Copom meeting next month is nailed on (we expect a 100bp hike to …
High inflation to keep Banxico in tightening mode The renewed rise in Mexican headline and core inflation in the first two weeks of September, to 5.9% y/y and 4.9% y/y respectively, ensures that Banxico will continue its tightening cycle at its meeting …
23rd September 2021
The statement from yesterday’s Brazilian central bank meeting, at which the Selic rate was raised by 100bp (to 6.25%), made clear that Copom is on the warpath to stop inflation expectations rising. With the inflation outlook worsening, we now think that …
Argentina’s PASO boosts bonds The loss for Argentina’s ruling Peronists in the open primary (PASO) for mid-term legislative elections in November suggest that the political tides might be shifting and boosted local financial markets. But the country’s …
17th September 2021
Following a surge in inflation across the region this year, we think that headline rates are at, or close to, a peak in major Latin American economies. But strong underlying price pressures will prevent inflation from falling below central banks’ targets …
15th September 2021
Bolsonaro takes centre stage It’s been a rollercoaster week in Brazilian politics and financial markets and, while investors have breathed a small sigh of relief in the past day or so, we think that they will be put under further pressure as the 2022 …
10th September 2021
Gloomy prospects for Mexican industry despite July uptick The stronger-than-expected 1.1% m/m rise in Mexico’s industrial production in July provides some encouragement that the economy fared well despite the onset of a third virus wave earlier this …
Yesterday’s larger 50bp rate hike, to 1.00%, delivered by Peru’s central bank (BCRP) suggests it is becoming increasingly concerned about the inflation outlook. With inflation set to stay above the 1-3% target range over the coming quarters, and GDP …
