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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
The unanimous decision by Banxico’s Board to keep its policy rate at 4.00% is a clear signal that its easing cycle is done and dusted. While this indicates a cautious shift at the central bank, we think that investors have gone too far in expecting that a …
Inflation starts to surge The surge in Brazilian inflation to 5.5% y/y in the middle of March – its highest rate in over four years – has further to run and the headline rate looks set to reach 7.5% y/y in Q2. That will result in further interest rate …
25th March 2021
Above-target inflation spells end of Banxico’s easing cycle The continued rise in Mexican inflation to 4.1% y/y over the first half of March, above the central bank’s 2-4% target range, will almost certainly put an end to Banxico’s easing cycle. We think …
24th March 2021
Colombia: investment grade rating in the balance A tax reform bill in Colombia, that will be sent to Congress next week, has slipped under the radar but this legislation could have a major bearing on the country’s sovereign investment grade rating. This …
19th March 2021
Latin America’s shining light The 6.8% q/q rise in Chile’s GDP in Q4 shows the economy headed into 2021 with significant momentum. And the outlook is bright given the country’s swift vaccine progress. As a result, we are revising up our 2021 GDP growth …
18th March 2021
The Brazilian central bank’s 75bp hike in the Selic rate (to 2.75%) and hawkish statement point to a front-loaded tightening cycle in the coming months. We now expect a further 200bp of hikes (to 4.75%) over the next three meetings. But we think the cycle …
Brazil’s fiscal discipline wavering Events over the past week have raised fresh concerns that Brazil’s public debt will be put on an unsustainable path, suggesting that sovereign bond yields could rise further. Yesterday, Brazil’s congress approved a …
12th March 2021
Industry to be a drag on GDP in Q1 The small 0.2% m/m rise in Mexican industrial production in January masks a concerning 0.5% m/m fall in manufacturing output. The sector will have also fared poorly in February following the disruption caused by power …
The Colombian government’s shift away from its austere fiscal stance will lead to higher public debt and, more likely than not, a loss of its sovereign investment grade rating. But, from an economic perspective, this is probably a price worth paying to …
11th March 2021
Inflation jump seals the deal on a rate hike next week The jump in Brazilian inflation to a stronger-than-expected 5.2% last month makes it almost certain that Copom will begin a tightening cycle next week. While we’ve pencilled in a 50bp rate hike (to …
Rising inflation signalling end to Banxico’s easing cycle The further rise in Mexico’s headline inflation, to 3.8% y/y in February, was largely driven by higher fuel prices. This trend has further to run in the coming months which, alongside the recent …
9th March 2021
The annulment of left-wing former President Lula’s criminal convictions has significantly increased the likelihood of a looser fiscal stance, which could put Brazil’s public debt back onto an unsustainable path. The central bank is more likely to hike …
Amlo’s electricity roll-back a warning sign The Mexican government’s bill to partly reverse reforms encouraging private participation in the electricity sector threatens to open up a Pandora’s box of legal wrangling and will further damage the prospects …
5th March 2021
Signs of a slowdown The 0.4% m/m rise in Brazilian industrial production in January, down from 0.8% m/m in December, confirms that momentum in the sector is easing. Moreover, with services sector being harder hit by the second wave of COVID-19 this year, …
Strong H2 2020 recovery, but slowing in 2021 The larger-than-expected 3.2% q/q rise in Brazilian GDP in Q4 confirms that the economy had one of the better performances in Latin America last year. But there is strong evidence to suggest that the recovery …
3rd March 2021
The growing strains in Brazil’s health system caused by the latest COVID-19 outbreak are likely to result in a further tightening of containment measures in the coming days, hitting the economic recovery. Pressure for more fiscal support is likely to …
2nd March 2021
Banxico: slim chance of additional easing Mexico has been one of the hardest hit EMs during the recent rout in global bond markets. The 10-year local currency government bond yield has jumped by almost 60bp to 6.30% this week. Meanwhile, the peso has …
26th February 2021
The tide is turning towards populist policymaking in Latin America once again. Most notably, Brazilian President Bolsonaro’s move to fire Petrobras’ CEO , Roberto Castello Branco, may be a prelude to greater state intervention in the economy ahead of the …
25th February 2021
Rising inflation probably won’t push Copom to hike … yet The rise in Brazilian inflation, to 4.6% y/y, in the middle of this month shifts the balance a bit further an interest rate hike at the next Copom meeting in March, but there are reasons to think …
24th February 2021
The strong Q4 GDP data for Peru suggests that the economy was heading into 2021 with significant momentum. And while there are growing downside risks from rising COVID-19 cases and a politically contentious vaccine programme, we’re still more upbeat than …
23rd February 2021
The Brazilian president’s decision to sack the Petrobras CEO last Friday points to greater government intervention in the economy and could be a prelude to a looser fiscal stance too. This suggests that the country’s financial markets are likely to remain …
22nd February 2021
Tex-Mex blackouts hits industry The energy crisis in Texas has had a major knock-on effect on Mexico, although the economy should be able to make up some lost ground. Natural gas is used to generate about 60% of Mexico’s electricity supply and the country …
19th February 2021
It’s unlikely that Colombia’s government will achieve its lofty fiscal targets over the coming years, which may prompt a loss of its investment grade rating – an outcome that is not fully priced into financial markets. But a bigger concern from an …
18th February 2021
The discussion in Brazil around extending emergency fiscal support reinforces our view that the government will ultimately cast aside the spending cap. That could put the public debt trajectory onto an unsustainable upwards path and, were that to happen, …
17th February 2021
Strong Q4 to be followed by Q1 stumble The robust 6.0% q/q rise in Colombia’s GDP in Q4 marks a solid end to 2020, but the recovery will slow sharply in Q1 due to the tightening of restrictions. The outturn was in line with our forecast, but below the …
15th February 2021
Brazil’s central bank gains independence The Brazilian Chamber of Deputies’ approval of a bill to grant the central bank (BCB) formal independence this week could, over the longer term, help to reduce inflation and lower longer-term bond yields. (For more …
12th February 2021
The unanimous decision by Banxico’s Board to cut its policy rate by 25bp, to 4.00%, suggests that policymakers are more dovish than we had thought. But the initial market reaction – significantly more monetary easing has been priced in – looks overdone. …
Chile is motoring ahead in Latin America’s vaccine race and it may be on course to start lifting stringent lockdown measures by mid-Q2. Other countries may follow suit in Q3, which feeds into our above-consensus GDP growth forecasts for most economies in …
11th February 2021
