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Weakening inflation to allow one final rate cut The further fall in Mexican inflation, to 3.2% in December, was largely driven by a drop in food inflation. With headline inflation likely to stay within Banxico’s 2-4% target range in the coming months, we …
7th January 2021
Soft inflation will allow Banxico to resume easing cycle The further fall in Mexico’s headline inflation, to 3.2% y/y in the first two weeks of December, was largely driven by a drop in food inflation. Nonetheless, underlying price pressures remain muted …
23rd December 2020
Peaking inflation should ease pressure on Copom The softer-than-expected Brazilian mid-month inflation figure for December, of 4.2% y/y, suggests that the earlier spike in inflation has now passed its peak. Coupled with rising new COVID-19 cases that may …
22nd December 2020
Vaccine rollout: the good, the bad and the ugly Policymakers in much of the region are stepping up efforts to launch vaccination campaigns, which could start within a few weeks. But there are early signs that this will be a difficult process, particularly …
18th December 2020
In typically conservative fashion, Banxico’s left its policy rate at 4.25% despite the weakness of inflation and the deteriorating near-term outlook. However, the dovish statement reaffirms our view that there will still be one more 25bp rate cut in this …
17th December 2020
Recoveries in Latin America are under threat from a fresh rise in new COVID-19 cases, particularly in Brazil, Mexico and Chile. Policymakers in all three countries have tightened restrictions which will weigh on activity this month and into early 2021. …
16th December 2020
Banxico’s traditional hawkishness set to fade? The approval of Galia Borja Gómez as a deputy governor of Banxico is likely to mark a dovish shift at the central bank. Admittedly, not much is known about the monetary policy views of Ms. Borja. But she will …
11th December 2020
A solid start but weak end to Q4 The robust 2.0% m/m rise in Mexican industrial production in October suggests that the economy started Q4 on a solid footing. But more timely indicators imply that the recovery struggled over the rest of the quarter, which …
Latin America will be glad to see the back of 2020, although 2021 will hardly be plain sailing. In general, the hangover from weak public finances will hold back the region’s economic recovery relative to others in the emerging world, suggesting monetary …
10th December 2020
The statement accompanying the Brazilian central bank’s decision (to keep the Selic rate at 2.00%) suggests that it is starting to consider interest rate hikes. But we think the shift towards monetary tightening will be much more gradual than most …
Weakening inflation to allow one final policy rate cut The sharp drop in Mexican inflation to 3.3% in November was largely driven by a drop in food and fuel prices, although underlying price pressures also remained soft. With inflation likely to settle …
9th December 2020
Food inflation surges, but core inflation may have softened The further rise in Brazilian inflation, to 4.3% y/y last month, was (again) the result of higher food inflation. But inflation in most other price categories fell last month which may help to …
8th December 2020
Brazil: benefitting from fiscal largesse… The activity data out of Brazil this week confirmed that its economy has suffered much less than others in Latin America. Q3 GDP figures showed that output was down 3.9% y/y (compared with 8-10% y/y elsewhere) and …
4th December 2020
Given the recent positive vaccine developments, we are revising up our GDP forecasts across the region. Among the major economies, Chile and Mexico are likely to be the biggest beneficiaries while Colombia and Peru will be the smallest. Nonetheless, the …
3rd December 2020
Regional outperformer The 7.7% q/q rise in Brazilian GDP in Q3 was a bit weaker than had been expected, but the data still confirm that the economy has fared better than other major Latin American countries so far during this crisis. It looks like …
Industry keeping the recovery going The 1.1% m/m rise in Brazilian industrial production in October confirms that, after what looks to have been a very strong Q3, the economy held up well at the start of Q4. Surveys suggest that this continued into …
2nd December 2020
A fresh rise in COVID-19 cases in Brazil and Mexico threaten to derail their recoveries in late-Q4 and Q1. On the flipside, the near-term outlook is relatively bright in Argentina, Peru and Chile. By the end of Q3, Brazil’s economy was relatively close to …
1st December 2020
Solid current account to support MXN This week’s data dump from Mexico showed a sharp drop in inflation to 3.4% in early November , and a small upward revision to Q3 GDP from the provisional estimate (+12.0% q/q to +12.1% q/q). Perhaps the most …
27th November 2020
The positive news on the efficacy of COVID-19 vaccines offers hope for the region’s economy. As things stand, Chile and, to a lesser extent, Mexico look well placed to benefit given their sizeable pre-orders. Purchases are relatively small in Peru and …
25th November 2020
Fall in Mexican inflation supports the case for a rate cut The fall in Mexican inflation, to 3.4% y/y, in the middle of this month, supports our view that Banxico will cut its policy rate by a further 25bp, which we now expect to happen at next month’s …
24th November 2020
Pension withdrawals 2.0 in Peru and Chile The recent political storm in Peru has calmed after centrist Francisco Sagasti was sworn in as the third President in just over a week. Local financial markets and the sol have reversed their earlier losses. The …
20th November 2020
Argentina’s central bank (BCRA) is running out of FX reserves to prop up the peso and it may soon devalue the currency. Even so, it would take an overhaul of the monetary policy setup, probably under the guise of a new IMF agreement, to prevent a more …
19th November 2020
Small Q2 recovery but outlook remains bright The 5.2% q/q rise in Chile’s GDP in Q3 may seem small relative to the 13.5% q/q drop in Q2. But the recovery was accelerating through the quarter, and we think that output will return to its pre-crisis level …
18th November 2020
Recovery faces large hurdles despite vaccine hopes The 8.7% q/q rebound in Colombia’s GDP in Q3 meant output was still 9% below its pre-virus level by the end of the quarter. Although hopes for a vaccine have brightened the outlook, weak fiscal support …
17th November 2020
Vaccine hopes, but Lat Am will suffer scarring The news of the successful trial of Pfizer’s COVID-19 vaccine has raised hopes that effective vaccines could soon start to be distributed. At this stage, there is a lot of uncertainty. Much will depend on the …
13th November 2020
The communications accompanying the Mexican central bank’s decision to leave its policy rate unchanged at 4.25% suggest that there may still be scope for one more cut in the easing cycle. While it’s touch and go, we think it’s most likely that there will …
12th November 2020
Recovery lost momentum, rate cut likely The Mexican headline industrial production figure for September, which showed that output was flat from August, masks a welcome pick-up in growth in the key manufacturing sector. Even so, it’s clear that the …
11th November 2020
The impeachment of Peru’s president, Martín Vizcarra, has rattled the country’s financial markets and may pave the way for looser (and more populist) fiscal measures in the coming months. Given the country’s strong balance sheet, such policies should have …
Core inflation stabilising, Banxico still likely to cut Mexican headline inflation inched up further, to 4.1% y/y last month, but that mainly reflects a rise in food inflation and underlying price pressures are stabilising. Taking that together with the …
9th November 2020
US election: Goldilocks scenario for Lat Am? Joe Biden looks set to win the US election and will probably face a divided government in the Senate. That may be the best outcome for Latin American economies. For Mexico, Biden will probably take a less …
6th November 2020
Surging food inflation unlikely to concern Copom The further rise in Brazilian inflation to 3.9% y/y in October, from 3.1% y/y in September, was (again) mostly driven by higher food inflation. We don’t think that the central bank will be too concerned …
Solid end to Q3 September’s solid 2.6% m/m rise in Brazilian industrial production took output above its pre-crisis level, and suggests the economy continued to fare well at the end of Q3. The latest surveys point to further strong gains in October, …
4th November 2020
We think that the latest activity surveys for October may be overstating growth in Brazil, although they reinforce the view that its economy remains ahead of Mexico at this stage of the recovery. The recently-released October activity surveys can give us …
3rd November 2020
The result of Tuesday’s US election is unlikely to be as important for Mexico as it was four years ago, with domestic factors remaining key to its bleak economic outlook. However, Biden’s climate change agenda could raise tensions with Brazil, and dampen …
2nd November 2020
Brazil: inflation concerns look overdone Concerns about the recent rise in inflation in Brazil have grown this week, with some suggesting that the IPCA-15 figure published in the previous week showed signs of a rise in underlying price pressures. There …
30th October 2020
Double-digit recovery masks underlying weakness The 12% q/q rebound in Mexico’s GDP in Q3 still left output some 8% below its Q4 2019 level. And the recovery lost significant momentum throughout the quarter – a trend which we expect to continue. The …
The tone of the Brazilian central bank’s statement from yesterday’s meeting (at which the Selic rate was kept at 2.00%) was a little less dovish than the previous one. But it still provides plenty of reason to expect the Selic rate to remain unchanged for …
29th October 2020
The latest hard activity data show that the pace of recovery eased across most of the region in August and more timely figures suggest that the trend continued in late Q3 and early Q4, indicating that the initial gains from re-opening economies are …
28th October 2020
The overwhelming vote in favour of rewriting Chile’s constitution will set the ball rolling towards entrenching a larger role of the state in the economy. And it may cause the central bank to adopt a more dovish stance in the medium term. This is likely …
26th October 2020
Chile: The long road to a bigger state? Political uncertainty is now the main certainty in Chile. Indeed, Sunday’s landmark referendum on constitutional change could be the start of a long and complex process to alter its political landscape. The latest …
23rd October 2020
Food inflation continues to surge The jump in Brazilian inflation, to a seven-month high of 3.5% y/y in the middle of October, was driven almost entirely by the ongoing spike in food inflation. This is likely to keep inflation high in the next few months. …
Above-target inflation unlikely to stop Banxico’s easing cycle Although Mexico’s headline inflation was above the central bank’s target, at 4.1%, in the first half of October, with price pressures likely to ease and activity still weak, we think that …
22nd October 2020
Overview – The picture has brightened for Latin America as new COVID-19 cases have fallen from their peaks, which should allow governments to ease restrictions and provide a boost to economic recoveries. Even so, with the number of new cases still very …
21st October 2020
Mounting pressure for the ARS to fall This week Argentine President Fernández and Economy Minister Guzmán poured cold water on the idea that the peso would be devalued. But with the central bank (BCRA) struggling to manage the currency, policymakers may …
16th October 2020
Latin America’s non-oil economies will see larger benefits than most other countries from China’s rebound. This provides grounds for cautious optimism about the prospects for Chile and Peru. But for the rest of the region, the boost from China will be …
13th October 2020
Manufacturing recovery fading The 3.3% m/m rise in Mexico’s industrial production in August was largely driven by a delayed rebound in construction output. Manufacturing production only rose by 0.8%, and more timely indicators suggest the sector will …
12th October 2020
IMF wades in on fiscal policy... The IMF made headlines this week with the suggestion in its latest Fiscal Monitor that governments across the globe should continue to spend to support economic recoveries. It’s giving a similar message to Mexico. Indeed, …
9th October 2020
Food inflation surges, Copom unlikely to be troubled The jump in Brazilian inflation, to 3.1% y/y in September, was almost entirely driven by surging food inflation. Food inflation is likely to continue putting upward pressure on the headline rate in the …
More Banxico easing on the cards The stabilisation in Mexican inflation at 4.0%, after four successive monthly rises, should dampen hawkish sentiment at Mexico’s central bank. We think there is scope for at least one more 25bp rate cut, which is a more …
8th October 2020
Pressure for loose fiscal policy in Brazil is likely to persist and we think that the spending cap will be cast aside in the coming years. The government is already testing the water with creative accounting to get around spending limits and this is …
6th October 2020
