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Debt restructurings may be required…again Sovereign debt restructurings in Argentina and Ecuador came into focus this week, and while there are reasons for optimism, we remain concerned about fiscal sustainability in both countries. In Argentina, …
10th July 2020
Industrial collapse continues The further fall in Mexico’s industrial production in May reinforces our view that GDP suffered a double-digit slump in Q2 (in q/q terms), and suggests that the recovery is lagging those in the rest of the world. After a …
Rising inflation shouldn’t worry Banxico The further rise in Mexican inflation to 3.3% y/y in June, from 2.8% y/y in May, was largely driven by higher fuel prices. We think this trend has a bit further to run, although it is unlikely to deter the central …
9th July 2020
After blowing out in April, budget deficits in Latin America remained wide in May. And while a pick-up in economic activity should help tax revenues to recover and social welfare spending to ease over the second half of the year, the slow pace of the …
8th July 2020
The latest surveys and high-frequency data suggest that Latin America’s economic recovery finally started to firm up in June. But it is still lagging other EM regions – and Chile’s recovery is yet to get going. After a raft of disappointing economic news, …
6th July 2020
Lockdowns battering Lat Am labour markets Data this week painted a clearer picture of the recent hit to Latin American labour markets. On a seasonally adjusted basis, unemployment rates jumped by 5-10%-pts in Colombia and Peru (data for the Lima …
3rd July 2020
Recovery weak in May, but strengthened in June Brazil’s industrial sector only recovered a small share of its coronavirus-related losses in May, with continued weakness the auto sector one key factor. While surveys suggest that the data for June will be a …
2nd July 2020
The decision by the Colombian central bank to slow the pace of easing from 50bp to 25bp at last night’s meeting suggests that the rate-cutting cycle is approaching its conclusion. We remain comfortable with our forecast for two more 25bp cuts in the …
1st July 2020
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
29th June 2020
Fiscal paths point to diverging recoveries The governments of Brazil, Colombia and Chile have recently outlined plans that shed light on the path of fiscal policy beyond this year, which is likely to result in diverging recovery prospects. At one end of …
26th June 2020
Policymakers in the region have started to ease lockdowns but, with daily coronavirus cases still trending higher, restrictions are being lifted much more slowly than in most other countries. And Chile’s government has doubled down on its lockdown in the …
25th June 2020
Below-target inflation leaves room for another rate cut Brazil’s broadly steady mid-month inflation reading for June, of 1.9% y/y, masked the fact that a rise in food inflation offset falls in inflation in most other price categories. Weak price pressures …
Rising inflation doesn’t preclude further rate cuts The rise in Mexican headline inflation to 3.2% y/y in the middle of June will keep policymakers in a cautious mood – something that’s likely to be reflected in the tone of the statement from tomorrow’s …
24th June 2020
Chile’s push for QE gains momentum Chile’s central bank took a further step into unconventional territory this week, after announcing what appears to be the first QE programme in the region. (See our Update for more.) While few details were released at …
19th June 2020
Peru’s economy appears to be suffering one of the largest economic hits of any country from the coronavirus, which is likely to spur further policy easing. With short-term interest rates essentially at zero, further monetary loosening would initially …
18th June 2020
The statement from yesterday’s Brazilian central bank meeting poured cold water on expectations in the market that the Selic rate would be cut further from its current level of 2.25% to as low as 1.00-1.50%. It seems that policymakers will consider only …
The decision by Chile’s central bank to leave its policy interest rate unchanged at 0.50% was accompanied by a statement which appeared to unveil a QE programme. The finer details will be fleshed out in the coming days but, along with a recently announced …
17th June 2020
Most policymakers in Latin America are easing lockdowns even though the region is now the epicentre of the coronavirus pandemic. This may be less economically damaging than keeping stringent restrictions in place for longer, but the economic outlook in …
16th June 2020
Brazil’s Covid data now part of the problem Brazil’s handling of the crisis has come under even greater scrutiny after the government decided to halt publication of coronavirus statistics last weekend, before making a U-turn on the request of a supreme …
12th June 2020
Our Taylor Rules suggest that monetary easing cycles have further to run in Brazil, Mexico and Colombia, and we have pencilled in additional interest rate cuts in all three countries. Moreover, monetary policy across the region is likely to be looser than …
11th June 2020
Industrial collapse may prompt additional stimulus The 25.1% m/m collapse in Mexico’s industrial production in April suggests that Mexico’s economy suffered a hefty blow in Q2. Although this may mark the bottom for industry, it will add pressure for …
Inflation at lowest rate in over 20 years The decline in Brazilian inflation to a multi-decade low of 1.9% y/y in May will give Copom plenty of room to cut interest rates when it meets next week. We’ve pencilled in a 50bp cut at that meeting, to 2.50%, …
10th June 2020
Governments in Chile and Peru should be able to live comfortably with a jump in their public debt-to-GDP ratios this year. Those in Colombia, Mexico and, to a greater extent, Brazil will struggle. The first port of call will probably be renewed austerity, …
9th June 2020
Rising inflation unlikely to throw Banxico off course The pick-up in Mexican inflation to 2.8% y/y in May, from 2.2% y/y in April, is unlikely to deter the central bank from continuing its easing cycle. We expect a 50bp rate cut at its meeting later this …
Relief for the region’s currencies The improvement in global risk appetite has lifted financial markets in Latin America by more than most other regions. Indeed, the region’s currencies have been some of the best performers in the emerging world over the …
5th June 2020
The recent progress in talks between Argentina’s government and bondholders suggests that a debt restructuring deal is increasingly likely. However, we are sceptical of the IMF’s view that the government’s latest offer would restore public debt …
4th June 2020
The latest activity data suggest that stringent lockdowns are causing especially deep falls in GDP in Peru and Argentina. But with the region as a whole struggling to contain outbreaks, and limited scope for looser policy, the economic recovery is …
3rd June 2020
Worst industrial figure on record The 18.8% m/m fall in Brazilian industrial production in April was not as calamitous as we and most others had feared, but it still highlights that GDP will fall dramatically in Q2 – perhaps by 10-12% q/q. It will also …
Banxico gives clues of significant easing This week Banxico released its first Quarterly Report of the year, and the minutes of its May 14 th meeting. Three points stand out from these pieces. First, Banxico’s GDP views look (plausibly) downbeat. It …
29th May 2020
Stumbling even in Q1 The 1.5% q/q fall in Brazilian GDP in Q1 highlights that the economy had slipped into a deep downturn by March, even though the country was slow to impose lockdown measures. And more timely figures point to a double-digit fall in GDP …
The coronavirus has continued to spread rapidly across much of the region, with Brazil now registering the most new cases per day of any country in the world. And on a per capita basis, the surge in Peru and Chile look particularly alarming. High …
Lowest inflation since 1999 The fall in Brazilian inflation to just 2.0% y/y in the first half of this month provides plenty of space for Copom to follow up this month’s 75bp interest rate cut with more easing. For now, we have pencilled in one final 50bp …
26th May 2020
Virus spread worsens growth outlook Brazil has hit the headlines this week amid a rapidly developing political crisis and the rampant spread of coronavirus in the country. The number of new cases per day is nearing that in the US. But Brazil is not the …
22nd May 2020
Jump in inflation will spook Banxico The larger-than-expected rise in Mexican inflation in the first half of May, to 2.8% (from 2.1% in April), may prompt the central bank to slow the pace of easing (or even pause its cycle) at next month’s meeting. …
Q1 GDP data from Peru suggest that its lockdown is having a bigger impact on activity than measures elsewhere in Latin America. And with new infections in Peru surging in recent weeks, we are revising down our estimate for the fall in GDP this year from …
Barring an eleventh hour deal out of the blue, Argentina’s ninth sovereign default will be confirmed on Friday and, while this event is unlikely to surprise many in the markets, it will up the ante on debt restructuring talks. For our part, we think there …
21st May 2020
The continued rapid spread of the coronavirus through Brazil means that the economy will pull out of its slump more slowly than in many other emerging markets. And with the crisis challenging the government’s stability, the risks are skewed towards …
20th May 2020
The weaker-than-expected Q1 GDP figure, coupled with signs that Q2 is shaping up to be worse than we had initially thought, has prompted us to revise down our estimate for the fall in Colombian GDP this year. We now expect a contraction of 7.0% …
19th May 2020
Chile’s recovery to be short-lived While Chile’s economy grew strongly in Q1, this was largely due to favourable base effects resulting from strikes in Q4, and hides a sharp deterioration in activity in March. We expect a steep contraction in Q2, and a …
18th May 2020
Real tumbles as political turmoil worsens Brazilian financial markets suffered further sharp falls this week as concerns about the political crisis mounted. We looked at justice minister Sérgio Moro’s resignation in detail a few weeks ago. (See here .) …
15th May 2020
Colombia’s public debt ratio will rise sharply this year and we disagree with the consensus view that it will fall back from 2021. This is likely to limit any recovery in the Colombian bond market over the coming years. The hit to Colombia’s fiscal …
14th May 2020
Things are about to get a whole lot worse The 5% y/y drop in Mexican industrial production in March is largely old news, but the breakdown of the headline figure was more noteworthy and suggests that the manufacturing sector has been hit harder than …
12th May 2020
One major difference between Argentina’s current crisis and the historic 2001/02 episode is that the hit to private sector balance sheets should be smaller. So even though the coronavirus will cause a steep contraction in GDP this year, we don’t expect a …
11th May 2020
Window closing for Argentina & bondholders This week brought further evidence that the Argentina’s government and bondholders remain far apart on a restructuring deal and, unless both sides thrash out something quickly, talks could get bogged down and …
7th May 2020
Inflation collapses, 100bp cut on the cards this month The large fall in Mexican inflation to just 2.2% y/y in April (from 3.2% y/y in March) should embolden the central bank to step up the easing cycle when it meets later this month. We’ve pencilled in a …
The Brazilian central bank’s 75bp cut in the Selic rate last night and the dovish tone of the accompanying statement has prompted us to pencil in a further 50bp of cuts (to 2.50%) in the coming months. Elsewhere, the Chilean central bank gave little away …
The collapse in the confidence surveys in Brazil and Mexico last month point to a contraction in activity that exceeds that experienced in each economy during the Global Financial Crisis. And with coronavirus cases still increasing sharply, this month …
5th May 2020
Political troubles add to Brazil’s problems Despite the growing public health crisis and collapse in the global economy, Brazilian politics ended up dominating the news in the region. Local markets collapsed late last week after the resignation of Justice …
1st May 2020
The statement accompanying the Colombian central bank’s decision to cut the policy rate by 50bp to 3.25% left the door open for more easing. Given the scale of the economic hit that we expect, the policy rate will likely be lowered by at least an …
The Latin American economies that moved early to contain the coronavirus – Chile, Colombia and Peru – are all now starting to look at ways to ease lockdown measures, which should support a gradual recovery in activity later this quarter. But lockdowns …
