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Renewed weakness supports case for additional rate cut The small 0.1% m/m rise in Mexico’s industrial production in December confirms that the economy lost significant momentum at the end of last year. The renewed economic weakness may help to convince …
11th February 2021
Rising inflation makes rate cut in Mexico less likely The rise in Mexican inflation in January makes Thursday’s interest rate decision a close call, although we still think a 25bp rate cut is more likely than not. Meanwhile, the further increase in …
9th February 2021
Ecuador’s new president must talk a good game Sovereign debt risks in Ecuador will remain high regardless of Sunday’s election result and we think that another debt restructuring is likely in the medium term. But for those with strong stomachs, there …
5th February 2021
The latest high-frequency and survey data suggest that the region’s economic recovery slowed in January, with Colombia seemingly faring worst. That said, the early signs are that the economic fallout from second waves of the virus hasn’t been as bad as …
4th February 2021
There seems to be little appetite for harsh IMF-mandated fiscal austerity among the leading candidates in Ecuador’s presidential election this week. The public finances will therefore remain in dire straits, and sovereign default risks will stay high, …
2nd February 2021
Industrial recovery strong in late 2020 but headwinds building The robust 0.9% m/m rise in Brazil’s industrial production caps off a strong recovery in the sector over the second half of 2020. But the unwinding of fiscal stimulus and the rampant second …
Brazil’s hawks looking at the labour market One takeaway from the minutes to this month’s Brazilian central bank meeting is that the hawkish contingent on Copom is larger and more vocal than had been anticipated. But there are reasons to think their views …
29th January 2021
A robust Q4 but recovery to halt in Q1 The solid 3.1% q/q rise in Mexico’s GDP in Q4 meant that the economy had recouped over 70% of its losses from the first half of 2020. However, the recent surge in new COVID-19 cases will cause the recovery to grind …
The surge in COVID-19 cases and tightening of containment measures across most of the region are likely to bring the economic recovery in Latin America to a standstill in Q1. High-frequency mobility indicators have stayed well below their pre-Christmas …
28th January 2021
Overview – While vaccines offer Latin America a route out of the crisis, lingering public debt issues will hold back the regional recovery and raise the risk of long-lasting economic scarring. As a result, after a sharp 6.9% drop in 2020, we expect a …
26th January 2021
Inflation set to jump in Q2 The above-target Brazilian mid-month inflation reading for January, of 4.3% y/y, is likely to be followed by a jump in the headline rate in the coming months, keeping Copom in hawkish mood. But while Brazil’s central bank will …
Ecuador: another default on the cards? Comments from left-wing Ecuadorian presidential candidate, Andrés Arauz, caused ructions in the bond market this week and reinforce our view that another debt restructuring may be on the cards. It’s still unclear who …
22nd January 2021
Soft inflation to allow one final rate cut The small rise in Mexican inflation, to 3.3% y/y over the first half of January, was largely driven by higher fuel prices and is unlikely to be a major concern for the central bank. We continue to expect one …
The Brazilian central bank’s decision to remove its forward guidance at last night’s meeting indicates that Copom is preparing the ground to raise interest rates. But we doubt that policymakers will deliver the aggressive tightening cycle that most …
21st January 2021
Brazil was Latin America’s economic outperformer last year, but the outlook for this year is increasingly challenging and we expect that the economy will fall behind its regional peers in the coming quarters. We now think that GDP will expand by 3.0% over …
20th January 2021
Brazil’s near-term prospects take a hit The Brazilian government’s announcement that it will (finally) begin vaccinations on 20 th January couldn’t come any sooner. The country’s COVID-19 outbreak has continued to worsen and the discovery of a new variant …
15th January 2021
We think that the Mexican central bank’s (Banxico’s) reaction function will gradually tilt towards tolerating higher inflation. As a result, we think that interest rates in Mexico will stay low for several years, perhaps until 2024, while most analysts …
14th January 2021
Food inflation peaking, but inflation to stay above target for most of 2021 The larger-than-expected rise in Brazilian inflation, to 4.5% y/y last month, coupled with the prospect of above-target inflation for much of 2021, will prompt an increasingly …
12th January 2021
Solid industrial sector likely to be resilient The solid 1.1% m/m rise in Mexican industrial output in November, coupled with more timely auto production data, suggests that the sector added around 1.5%-pts to q/q GDP growth in Q4. Moreover, we suspect …
11th January 2021
Positive news on vaccines… There is a glimmer of hope for economies across Latin America as vaccines are being rolled and procurement is stepping up. Currently Mexico, Chile, Costa Rica and Argentina are leading the region’s vaccine race. All four started …
8th January 2021
Industrial recovery strong in late 2020 but headwinds building The solid 1.2% m/m rise in Brazilian industrial production in November, coupled with strong surveys for December, suggests that the sector may have added some 0.5-0.6%-pts to q/q GDP growth in …
The pandemic has created fertile ground for populists to win presidential elections in Ecuador, Chile and Peru this year. That would have the biggest adverse market reaction in the former, and could lead to medium-term concerns about policymaking in the …
7th January 2021
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 …
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 …
