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Industrial recession continued in Q4 The 0.2% m/m fall in Brazilian industrial production in November, taken together with the weak surveys for December, suggests that the sector probably knocked 0.1-0.2%-pts off q/q GDP growth in Q4. There’s a very real …
6th January 2022
High inflation will keep central banks in tightening mode The fall in Brazilian inflation, to 10.4% y/y, in mid-December is likely to be followed by further declines in the coming months. Inflation in Mexico edged up in the same period, to 7.45% y/y, but …
23rd December 2021
Recoveries across Latin America have lost momentum in Q4 even though, unlike in other regions such as Europe, new COVID-19 cases generally remain low and containment measures are still light-touch at this stage. The situation could get worse if the …
22nd December 2021
Gabriel Boric’s victory in Chile’s presidential election is another sign that the country is moving towards greater state intervention in the economy. A radical shift in policymaking seems unlikely. But the public debt-to-GDP ratio looks set to rise much …
20th December 2021
Our hits and misses from a volatile 2021 2021 was another whirlwind year for Latin America. The economic recovery has been bumpy, financial markets have underperformed, and Lionel Messi finally won the Copa América (sorry Brazil fans). In the final Weekly …
17th December 2021
Banxico added to this week’s global central banking bonanza with a surprise 50bp hike, to 5.50%, and the widespread hawkish shift on the Board suggests that policymakers will act more aggressively to tame above-target inflation. We now expect a further …
Chile’s central bank raised its policy rate by another 125bp yesterday, to 4.00%, and the accompanying statement, alongside today’s Monetary Policy Report , suggest that its tightening cycle will be more aggressive than we’d previously thought. We now …
15th December 2021
The recent batch of GDP figures showed that growth in Latin America as a whole picked up in Q3, but the region’s recovery so far has been one of the weakest in the emerging world. And growth prospects are only deteriorating, suggesting Latin America will …
13th December 2021
Copom waiting for expectations to fall The Brazilian central bank’s (BCB’s) meeting this week was, on balance, a hawkish one. There was another 150bp hike in the Selic rate, to 9.25%, and policymakers didn’t engage in the debate about whether higher rates …
10th December 2021
Auto sector leads a small rebound The small 0.6% m/m rise in Mexican industrial production in October was helped by a rebound in auto production, suggesting the sector may be starting to turn a corner. However, the risk of further global supply …
Early signs of stabilisation The slightly softer-than-expected Brazilian inflation figure, of 10.7% y/y, isn’t going to stop Copom from hiking the Selic rate by another 150bp (to 10.75%) when it meets in early February. But it does provide a sign that …
Inflation hits 20-year high but another 25bp hike still likely The rise in Mexico’s headline inflation to a 20-year high of 7.4% y/y in November will be a concern for Banxico. But it was partly driven by unfavourable base effects which will soon unwind. …
9th December 2021
Brazil’s central bank gave a clear steer that, even though the economy entered recession in Q3 and shows little sign of growth in Q4, it will follow the 150bp hike in the Selic rate yesterday (to 9.25%) with further aggressive tightening. We now think …
Multi-year high inflation will prompt further aggressive hikes The further rise in Chile’s inflation to 6.7% y/y – the highest rate since late 2008 – will keep pressure on the central bank to deliver further aggressive monetary tightening. We expect …
7th December 2021
More variants more problems? It goes without saying that the emergence of the Omicron variant presents a key risk to economic recoveries. But, for the time being, we think that central banks across the region will continue to focus on tackling high …
3rd December 2021
Early signs of another contraction in Q4 The surprise 0.6% m/m fall in Brazilian industrial production in October and weakness in the surveys for last month provide early evidence that the contraction in the economy last quarter may be followed by another …
In recession despite re-opening The 0.1% q/q fall in Brazilian GDP in Q3 confirmed that problems in the agricultural and industrial sectors tipped the economy into a technical recession. And with financial conditions tightening, the terms of trade …
2nd December 2021
Chile’s economy has been operating above potential for several months but there are signs that activity is starting to cool. And policy tightening, falls in copper prices and the possibility of more stringent virus restrictions in light of the Omicron …
1st December 2021
New face but same gradual tightening at Banxico Mexican President López Obrador delivered another (unhappy) surprise to markets this week by unexpectedly changing his nomination for Banxico’s next governor from Arturo Herrera to Victoria Rodríguez. But we …
26th November 2021
The final estimate of Mexican Q3 GDP data was revised down to a 0.4% q/q fall (original -0.2% q/q), but the breakdown showed the contraction was almost entirely due to an outsourcing law that hit services output. Regardless of this statistical quirk, …
25th November 2021
175bp rate hike on the cards The Brazilian inflation reading of 10.7% y/y in mid-November (the same as the October full month figure) provides the first sign that inflation is now stabilising. But with the headline rate still far above target and fiscal …
Political developments in Latin America have generally turned in investors’ favour this month. Right-wing José Antonio Kast beat his left-wing rival, Gabriel Boric, in the first round of Chile’s presidential election which buoyed local markets. Elsewhere, …
24th November 2021
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 …
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
