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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
BCRA heading in the right direction Argentina’s central bank (BCRA) announced a new monetary policy strategy in which it will allow a ‘managed float’ of the peso. It’s a promising step in the right direction, and should allay fears of a slide towards the …
2nd October 2020
Nearing pre-crisis levels The 3.2% m/m rise in Brazilian industrial production suggests that the sector has now returned to close to its pre-crisis level of output. But the data also provide some early confirmation that the surveys for the sector (which …
The latest figures suggest that the number of COVID-19 infections in the region has passed its peak – new cases are down by 35-60% compared to their July/August peaks in most of the large Latin American countries. And strains in healthcare sectors have …
30th September 2020
Lat Am currencies likely to recover The recent drop in global risk appetite, linked to fears over second waves and fading chances of additional US fiscal support, have put EM currencies in the firing line. At the time of writing, Latin American currencies …
25th September 2020
Higher inflation won’t yet put an end to the easing cycle The further rise in Mexican inflation, to 4.1% over the first half of September, was mainly driven by higher food and fuel prices. We suspect that the central bank will look past this and cut its …
24th September 2020
Food price spike drives headline rate up The further rise in Brazilian food inflation pushed up the headline rate to 2.7% y/y in the first half of September but, with core inflation still extremely soft, we doubt the central bank will be concerned. …
23rd September 2020
With new virus cases still high, capital controls more pervasive, and fiscal policy unlikely to stay loose, we are nudging down our Argentina GDP forecasts. We now expect an 11% drop this year and just a 4% rebound in 2021 (previous forecasts -10% and …
Rising food inflation in Brazil is likely to remain a cause for concern among politicians over the rest of the year, but with core inflation extremely weak, it’s not going to spook the central bank (BCB). One of the most notable features of the recent …
22nd September 2020
Argentina clamping down on dollars Argentina’s central bank has tightened capital restrictions (“ el cepo ”) to try to regain control over the peso. The strategy is just a short-term fix, though, which may come back to bite in a few years’ time. One of …
18th September 2020
The dovish tone of the Brazilian central bank’s statement from yesterday’s meeting (at which the Selic rate was left at 2.00%) supports our view that the policy rate will remain at its current historic low into 2022. In contrast, most analysts and …
17th September 2020
Votes due this week by Peru’s congress on whether to impeach the president and to censure (remove) the finance minister will likely be close calls and could leave a power vacuum. That said, history suggests that the near-term economic and financial market …
14th September 2020
A way out of Brazil’s fiscal straitjacket? Brazil’s congress will reportedly receive a plan for the Federative Pact reform next week, which could ease concerns about the public finances. The essence of the Pact is that it will shift spending …
11th September 2020
Industrial rebound losing momentum The marked slowdown in Mexico’s industrial production growth from 17.9% m/m in June to 6.9% m/m in July suggests the economic recovery was losing momentum at the start of Q3 – a trend which we expect to continue. This …
Chile’s economy is recovering more quickly than we had previously expected and, as a result, we are revising up our 2020 GDP growth forecast to -5.5% (previously -7.0%). The stronger rebound has eased pressure on the central bank to loosen monetary policy …
10th September 2020
The frugal 2021 budget proposed by Mexico’s government underlines policymakers’ fixation about public debt risks and concerns about their credit rating. Meeting policymakers’ new and ambitious targets may prompt a shift to fiscal tightening next year, …
9th September 2020
Inflation rises, but central banks won’t be too alarmed Brazilian inflation remained well below the central bank’s target last month, at 2.4% y/y, confirming that price pressures are soft and supporting our view that the Selic rate will stay low for a …
While the number of new coronavirus cases in Brazil remains extremely high, strains in the country’s health care system have eased significantly in recent weeks, reducing the risk of fresh lockdowns. But by the same token, containment measures are only …
8th September 2020
Brazil & Mexico’s PMIs diverge The manufacturing PMIs for August published this week were surprising, both for the strength they implied in Brazil’s economy and the weakness in Mexico’s. But in both cases, the surveys are painting an exaggerated picture …
4th September 2020
Industry making up lost ground quickly The stronger-than-expected 8.0% m/m rise in Brazilian industrial production in July adds to signs that the economy has recovered strongly in Q3. But with fiscal austerity likely to kick in next year, the pace of …
3rd September 2020
The latest data suggest that, after one of the world’s steepest economic declines in Q2, Peru’s recovery is already stalling against a backdrop of high and rising new coronavirus cases. But for those willing to squint hard enough, there are some reasons …
2nd September 2020
The completion of a deal to restructure almost all $66.2bn of Argentina’s international sovereign bonds will give the government some much-needed breathing space over the coming years, as will an upcoming $41.7bn local-law FX debt restructuring. However, …
1st September 2020
A slow recovery ahead The Brazilian Q2 GDP data, which showed a 9.7% q/q fall in output, confirmed that the country suffered one of the more modest downturns in Latin America. But with fiscal policy set to turn from a tailwind to a headwind, the pace of …
Argentina & the IMF: Take 22… Barring any unexpected hiccups, $66.2bn of Argentina’s international sovereign bonds will be restructured next Friday. As will $41.7bn of local-law FX bonds. Now the government wants to tackle the debts owed to its historic …
28th August 2020
Local currency government bond markets in Latin America generally came under pressure this month, but we think that most will rally over the rest of the year. In Chile and Peru, while local currency sovereign yields have risen recently in response to the …
27th August 2020
Copom unlikely to ease further despite weak inflation The further rise in Brazilian inflation, to 2.3% y/y in the first half August, was relatively modest and we expect the headline rate to remain well below the central bank’s 2020 target of 4% over the …
25th August 2020
Banxico set to slow pace of easing The rise in Mexican inflation to 4.0% in the first half of August, the upper end of Banxico’s target range, will probably prompt the central bank to slow the pace of its easing cycle. But with inflation set to drop back …
24th August 2020
Brazil at a fork in the road Fears that Brazil’s economy minister, Paulo Guedes (the linchpin of the government’s reform agenda), might resign have flared up again this week, and we think that there is now a political risk premium of around 20bp on …
21st August 2020
The latest data suggest that Brazil’s recovery so far has been quicker than we expected, which has prompted us to revise up our 2020 GDP growth forecast to -5.0% (previously -7.0%). However, tighter policy, labour market weakness and the continued spread …
19th August 2020
