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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 …
Strong price pressures across the board The rise in Brazil’s headline inflation rate to 9.7% y/y last month was driven by a broad-based strengthening of price pressures. With the economy re-opening and electricity tariffs hiked this month, the headline …
9th September 2021
Falling inflation unlikely to prevent further rate hikes The drop in Mexico’s headline inflation rate to 5.6% y/y in August masks a further rise in core inflation, to 4.8% y/y, which will be a concern for the central bank. This suggests that its gradual …
Above-target inflation to keep the central bank in a hawkish mood The further rise in Chile’s inflation to 4.8% y/y in August suggests that the central bank’s tightening cycle has a lot further to run. We expect a further 100bp of rate hikes, to 2.50%, by …
8th September 2021
Clouds gather over Brazil’s recovery The disappointing economic data out of Brazil this week has cast some clouds over the economy’s recovery prospects. As it happens, we think that GDP growth will pick up quite strongly in Q3, but we’re increasingly …
3rd September 2021
Industry likely to be the weak spot in Q3 The 1.3% m/m fall in Brazilian industrial production in July confirms that the sector continued its weak performance into the start of Q3, and surveys suggest that August will be weak too. That said, with the …
2nd September 2021
Brazil’s drought is getting worse and the impact on hydropower production and electricity tariffs will result in higher inflation than we’d previously thought. Fiscal risks could also intensify if the government seeks to cushion the blow to households. …
1st September 2021
Economy picking up after a soft Q3 Brazil’s GDP contracted by 0.1% q/q in Q2 but, with virus cases falling sharply, it looks like Q3 will be a lot stronger. We doubt that the fall in output last quarter will have much bearing on the central bank, which is …
The surprise 75bp interest rate hike by Chile’s central bank late on Tuesday (which took the policy rate to 1.50%) underscores policymakers’ concerns about the inflation outlook. Our forecasts for the policy rate had in any case been on the hawkish side, …
Brazil’s institutions take a beating The newsflow out of Brazil this week has made for grim reading, with open disputes between the presidency and supreme court putting the country’s democratic institutions under strain. In such circumstances, it’s hard …
27th August 2021
We estimate that Brazilian households have ‘excess’ savings worth around 6% of GDP resulting from the pandemic. These should help to cushion consumer spending in the face of headwinds caused by rising inflation and unwinding fiscal support, but we think …
26th August 2021
Another 100bp hike on the cards The rise in Brazilian inflation to 9.3% y/y in the middle of August provides Copom with plenty to worry about and will keep it on course to hike the Selic rate by another 100bp (to 6.25%) next month. The outturn was a touch …
25th August 2021
Rising core inflation to keep Banxico hiking Mexico’s headline inflation rate dropped to a weaker-than-expected 5.6% y/y in the first half of August, but the further rise in core inflation will continue to concern the central bank. We expect another 25bp …
24th August 2021
Brazil: electoral splurge concerns grow Worries about a worsening of Brazil’s fiscal position in the run-up to next year’s general elections have continued to build, which appears to have pushed up the credit spread on sovereign debt and adds to reasons …
20th August 2021
Inflation is at, or close to, multi-year highs across Latin America which has prompted a slew of interest rate hikes across the region. We think that central banks in Brazil, Mexico, Chile and Peru will continue their tightening cycles over the coming …
19th August 2021
Recovery picking up pace after Q2 slowdown The stronger-than-expected 1.0% q/q rise in Chile’s GDP, alongside the brightening economic outlook, means we are raising our above-consensus 2021 growth forecast to 10% (from 9%). We also expect that the central …
18th August 2021
The sharper-than-expected 2.4% q/q fall in Colombia’s GDP in Q2 was largely due to protest-related disruption in May and masked a strong rebound in output at the end of the quarter. The economic recovery appears to be progressing well so far in Q3, so we …
BCRP: same Governor, fresh tightening Peru’s central bank (BCRP), under the renewed stewardship of Governor Julio Velarde, fired the starting gun on its tightening cycle yesterday and we think it has much further to run over the next year. There were two …
13th August 2021
Mexico’s central bank hiked interest rates by 25bp, to 4.50%, yesterday but the split vote suggests that the tightening cycle will continue to proceed slowly despite the growing inflation risks. This reinforces our view that the policy rate will continue …
Clouds gathering over Mexican industry The surprise 0.5% m/m fall in Mexico’s industrial production in June was driven by broad-based declines across sectors, including further disruption to auto production. Industry probably continued to struggle in July …
11th August 2021
Rising inflation will add to Copom’s hawkishness The further rise in Brazil’s headline inflation to 9.0% y/y in July will add to the central bank’s concerns over the inflation outlook. We think that its aggressive tightening cycle has much further to run, …
10th August 2021
We expect that most commodity prices will come off the boil, which will weigh on recoveries across Latin America, particularly in Peru and Chile. While the brightening domestic picture will boost overall GDP growth in the very near term, this emerging …
9th August 2021
Above-target inflation to keep Banxico in tightening mode Despite the small fall in Mexico’s headline inflation rate to 5.8% y/y in July, core inflation rose further to 4.7% y/y on the back of higher services inflation. This strong inflation reading will …
Chile’s barnstorming recovery continues This week’s strong activity data from Chile reaffirms our long-held optimism over its economic recovery. Having faced a setback from a severe virus wave in early Q2, the official economic activity index (Imacec) …
6th August 2021
The pandemic appears to be accelerating a political trend towards populism in Latin America. While there is a lot of uncertainty about how this might play out, it generally points towards loose fiscal policy and greater state intervention across the …
5th August 2021
The hawkish statement accompanying yesterday’s 100bp rate hike by the Brazilian central bank (to 5.25%) means that the Selic rate will increase further than we had anticipated. We now expect it to be raised to 7.50% by year-end (previously 6.50%). The …
A weak end to Q2, but Q3 looking better The stagnation in Brazilian industrial production in June suggests that industry made a negative contribution to q/q GDP growth over Q2 as a whole. But with virus cases having fallen sharply, it looks like the …
3rd August 2021
Peru’s President Castillo off to a concerning start The first steps from Peru’s newly-inaugurated President, Pedro Castillo, provide plenty of worrying signs for investors. The president officially took office on Wednesday and his inauguration speech …
30th July 2021
Robust Q2 but recovery to slow from here The re-opening of Mexico’s economy caused GDP growth to accelerate to 1.5% q/q in Q2, and we suspect that this preliminary figure will be revised up. But with new virus cases rising sharply, the economy is likely …
