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The hawkish statement from the Brazilian central bank meeting (at which the Selic rate was raised by 75bp to 4.25%) indicates that policymakers are more confident in the economic recovery but also more worried about energy inflation than we had …
17th June 2021
Chile’s renewed lockdown measures provide further evidence that its rapid vaccination programme has a lot further to run to quash the virus. The good news is that the economy seems resilient to stringent restrictions, and there is evidence that vaccines …
15th June 2021
Peru at a crossroads The victory for left-wing candidate Pedro Castillo in Peru’s presidential election last Sunday caused local markets to tumble. However, if his more moderate post-election comments are borne out by policymaking, history provides …
11th June 2021
A small bump in the road The surprise drop in Mexican industrial production in April may partly be payback for a strong March. And early indicators suggest that industrial activity picked up in May. Moreover, with services sectors recovering, we continue …
Copom to hike by a further 75bp next week The further jump in Brazil’s headline inflation rate last month, to 8.1% y/y, makes a 75bp hike in the Selic rate (to 4.25%) next week certain and Copom will probably signal that another 75bp hike is on the cards …
9th June 2021
Rise in core inflation unlikely to last The rise in Mexican core inflation to its highest rate in over three years in May, at 4.4%, appears mainly to be related to temporary factors. Policymakers at the central bank will probably continue to adopt …
Peru election: fraught with political risks A victory for left-wing populist Pedro Castillo in Peru’s presidential election on Sunday would probably send local financial markets into a tailspin, but we doubt that investors would have much to cheer about …
4th June 2021
The latest data suggest that Brazil’s economy has been much more resilient to the latest virus waves than we had anticipated and, as a result, we’re revising up our GDP growth forecast for this year to 4.5% (previously 3.0%). The brighter economic outlook …
3rd June 2021
Sunday’s midterm elections in Mexico are widely seen as a referendum on President López Obrador’s tenure, and a strong result for his coalition could embolden him to pursue more interventionist policies. This Update outlines five key questions (and …
2nd June 2021
Industry hit in April, but probably turned the corner in May The worse-than-expected 1.3% m/m decline in Brazilian industrial production in April is likely to be followed by a partial recovery last month. That said, the latest surveys suggest that …
Economy showing resilience to virus waves The 1.2% q/q expansion in Brazil’s GDP suggests that the economy held up well during the country’s second virus wave and more timely figures point to a rapid recovery from the more recent third wave. These figures …
1st June 2021
Banxico minutes: cautious but not too concerned The minutes to Banxico’s latest meeting revealed that Board members are becoming more wary about the outlook for inflation. Even so, we think that there is a high bar for a tightening cycle to begin. The …
28th May 2021
Chilean financial assets have been hit hard following the Constitutional Convention election, and this Update outlines three key political risks which could keep local markets under pressure over the coming quarters. These are likely to shape how Chile’s …
27th May 2021
Political risks have intensified in the Andes this month, which could be part of a broader trend throughout the region. In Colombia, the protests against tax reforms have pushed policymakers away from the fiscal austerity measures required to repair the …
26th May 2021
Inflation jump to keep Copom hiking in June The further rise in Brazilian inflation, to 7.3% y/y in the middle of May, can partly be pinned on unfavourable base effects, but there are also signs of a broader increase in goods inflation. While this …
25th May 2021
Underlying price pressures starting to build The drop in Mexico’s headline inflation to 5.8% y/y in the first half of May was driven by a sharp fall in energy inflation. While we expect that this trend will continue in the coming months, there are signs …
24th May 2021
Chile’s economic model set for a shake up? The surprise results of the vote at the weekend to elect members to Chile’s Constitutional Convention points to a much greater likelihood of rises in public spending on welfare and larger budget deficits. In the …
21st May 2021
For now, it seems unlikely that the drought affecting Brazil will hit hydropower production hard enough to cause disruptions to electricity supply and broader economic activity. But the drought does pose a risk to the outlook for inflation (and possibly …
19th May 2021
The latest COVID-19 outbreaks in Latin America have passed their peak and the near-term outlook is improving. But, with the probable exception of Chile, the latest developments reinforce the message that the threat of renewed outbreaks will continue to …
18th May 2021
Recovery hitting a temporary bump The softer-than-expected 3.2% q/q rise in Chilean GDP in Q1 will probably be followed by a marked slowdown in Q2 caused by the lockdown at the start of the quarter. Nonetheless, high-frequency data are already showing …
Chile’s constitutional re-write process starts The vote by Chileans this weekend to elect members to a convention tasked with re-writing the constitution will set in motion a process that is likely to have far-reaching consequences for the economy and …
14th May 2021
The statement accompanying the Banxico Board’s decision to keep the policy rate at 4.00% suggests that policymakers’ concerns about inflation risks are growing, but it doesn’t change our view that they will keep rates unchanged throughout this year and …
Manufacturing bounces back after power outages in February The 0.7% m/m rise in Mexican industrial production in March masked a more impressive 3.0% m/m increase in output in the key manufacturing sector, which recovered from disruptions caused by power …
12th May 2021
Inflation jump points to another rate hike in June The further jump in Brazilian inflation to 6.8% in April makes another 75bp rate hike (to 4.25%) at the next central bank meeting in June highly likely. But the breakdown of the data provides reason to …
11th May 2021
Recent protests have pushed Colombia’s government away from the fiscal reforms that are needed to reduce the public debt ratio in the coming years. It’s therefore likely that the sovereign will lose its investment grade rating, which will keep local …
10th May 2021
Colombian peso to stay weak as fiscal risks linger The mass protests against austerity have increased the risks around Colombia’s fiscal position and we think that local financial markets and the currency will remain on the backfoot in the coming …
7th May 2021
Banxico unlikely to be concerned by inflation jump The surge in Mexico’s inflation to 6.1% y/y in April was mainly driven by unfavourable base effects linked to fuel prices and this impact should unwind over the coming months. We think that Banxico will …
The statement accompanying Brazil’s central bank meeting, at which it raised the Selic rate by 75bp to 3.50%, was more hawkish than the previous one. While we doubt that the tightening cycle will go as far as most expect, the risks to our forecast for a …
6th May 2021
Slump in industry unlikely to deter further rate hikes The 2.4% m/m drop in Brazil’s industrial production in March is a clear sign that the severe virus outbreak has put the economic recovery into reverse and the data for April may be worse still. But …
5th May 2021
Colombia: tax reforms not so easy after all It was always going to be a tough ask for Colombia’s government to push through tax hikes during the current crisis, and the mass protests this week have made the challenge even harder. To recap, the government …
30th April 2021
Recovery slowed in Q1 but back on track in Q2 The modest 0.4% q/q rise in Mexico’s GDP in Q1 largely reflects the economy’s poor performance at the start of the year. The good news is that the recovery got back on track at the end of the quarter and in …
The third round of pension withdrawals in Chile will help to boost its economic recovery in the near term, but is unlikely to be as impactful as the previous two. The broader concern is that it signals a shift away from pragmatic policymaking, which may …
29th April 2021
Inflation is above target in Brazil and Mexico, with Chile set to follow in the coming months, but only in the former is the central bank likely to respond with (further) interest rate hikes. Brazil’s case reflects a combination of high inflation, a …
27th April 2021
Rise in headline rate to keep Copom tightening The jump in Brazil’s inflation to 6.2% y/y in mid-April is likely to keep the central bank on course to hike the Selic rate by 75bp, to 3.50%, at its meeting next week. The outturn was a little lower than …
Third time isn’t a charm in Chile The third pension withdrawal bill currently in the pipeline in Chile would support its recovery in the near term. But it is another concerning sign of a gradual shift towards populist policymaking. To recap, the two …
23rd April 2021
Overview – Severe COVID-19 outbreaks across Latin America will put a brake on the region’s economic recovery in Q2. While we’re more optimistic than most that the rollout of vaccines will boost output later this year and in 2022, we still think that Latin …
22nd April 2021
All about the base The jump in Mexican inflation to 6.1% y/y in the first half of April was primarily linked to unfavourable base effects from low oil prices a year ago. We doubt that this will concern the central bank, and we expect it to keep its policy …
Bolsonaro’s budget problems coming to a head Brazil’s 2021 budget crisis – in which the president faces a trade off between potentially falling foul of the country’s fiscal laws and losing support in congress – is likely to come to a head next week. To …
16th April 2021
Worsening virus outbreaks and tighter lockdown measures are weighing on economic recoveries across Latin America, particularly in Brazil and Chile. Rapid progress with vaccinations may allow Chile’s economy to turn a corner before long, but the rest of …
15th April 2021
The surprising victory for conservative Guillermo Lasso in Ecuador’s presidential election increases the chances that public debt will be put onto a sustainable path, and will probably boost the country’s sovereign dollar bonds in the near term. …
12th April 2021
Populist shifts in Peru & Ecuador? Voters head to the polls in Peru and Ecuador on Sunday which could lead to a populist shift in both. The first round of Peru’s general election is a big unknown. The latest opinion polls suggest that no presidential …
9th April 2021
Inflation spike means further hikes on the cards The jump in Brazilian inflation to 6.1% in March was largely a result of rising energy inflation, which will be transitory. Even so, the central bank is clearly worried by above-target inflation and another …
Industry resilient despite power outages The surprising 0.4% m/m rise in Mexico’s industrial production in February came despite the hit to manufacturing and utilities output from power outages. The industrial sector probably gained further ground in …
While Chile is currently battling with a severe wave of virus cases, we remain cautiously optimistic about the resilience of the economy in Q2, and the prospect of a vaccine-related boost to output over the second half of this year. As a result, we are …
8th April 2021
Banxico likely to look through surging inflation The jump in Mexico’s headline inflation, to 4.7% y/y in March, was driven once again by higher fuel inflation. We think this trend has a bit further to run, but the central bank is likely to look through …
We suspect that Argentina’s government and the IMF will thrash out a new deal, the 22 nd in their history, but we doubt that this will lead to the sustained turnaround in policymaking that is needed to put public debt onto a sustainable path. The upshot …
7th April 2021
BCCh signals tightening is coming Chile’s central bank (BCCh) was notably less dovish at its meeting this week, as it appeared to lay the groundwork for a rise in interest rates later this year. The decision to leave its policy rate at 0.50% came as no …
1st April 2021
Disappointing February likely to be followed by further weakness The 0.7% m/m drop in Brazilian industrial production was led by the auto sector, which may reflect supply shortages but also weakening demand following the end of emergency income support. …
Latin America’s recovery has been far from plain sailing, and the recent rise in new COVID-19 cases across the region is yet another setback. This is most worrying in Brazil, where the health system is close to breaking point and lockdown measures have …
30th March 2021
Copom point to front-loaded tightening Investors’ expectations for Brazil’s Selic rate have shifted up even further following last week’s rate hike, but we think that they have gone too far. The analyst median forecast, published in the central bank’s …
26th March 2021
