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Bad Q1 to be followed by Q2 slump The 1.6% q/q drop in Mexico’s GDP in Q1 was slightly better than many had expected, but the outturn in Q2 is likely to be much worse. We expect an 8% fall in GDP over this year as a whole – one of the worst in the …
30th April 2020
Latin American banks are generally in good shape, but the sheer scale of the fall in output and limited policy responses to protect incomes in parts of the region mean that the rise in bad loans could be much bigger than it was during the Global Financial …
29th April 2020
Low inflation opens door for a 50bp cut The decline in Brazilian inflation to 2.9% y/y in the first half of April suggests that Copom will be able to lower the Selic rate by an additional 50bp (to 3.25%) next week. The political crisis and in the recent …
28th April 2020
Brazil’s economy is better placed to withstand a twin political and economic crisis than it was during the Dilma impeachment of 2015-16. But the brewing political mess could leave long-lasting damage if it prevents policymakers from acting quickly enough …
27th April 2020
Oil price collapse another major headwind The dramatic drop in oil prices earlier this week will deal yet another blow to the region’s oil producers – none more so than Venezuela – where the humanitarian crisis will get even worse. President Maduro’s …
24th April 2020
Overview – The downturn in Latin America this year will the deepest since reliable records began. The slow and limited economic policy responses in Brazil and Mexico, as well as struggles to bring their coronavirus outbreaks under control, suggest that …
Lowest inflation on record, larger rate cuts in store The collapse in Mexican inflation to just 2.1% y/y in the first half of April will give Banxico more space to support the economy. It looks increasingly likely that the central bank will follow up this …
23rd April 2020
The plunge in oil prices is yet another drag on Mexico’s freefalling economy, and may hasten a move by Pemex to restructure its external debts. The government’s lacklustre response to the economic crisis is forcing Banxico to do the heavy lifting to …
22nd April 2020
Containment dispute in Brazil… The coronavirus has thrust Brazilian politics into the spotlight this week after President Bolsonaro fired health minister Luiz Mandetta amid an ugly dispute about containment measures. President Bolsonaro has since called …
17th April 2020
The Argentine government’s aggressive proposal to restructure its international bonds entails over $40bn in debt relief, which would go some way to restoring public debt sustainability. However, there is a significant risk that negotiations between …
Our oil price forecasts are consistent with a 30% drop in Pemex’s revenues this year, which suggests the firm will need additional state support to service its large debts. However, with the coronavirus crisis intensifying, we’re not convinced that …
16th April 2020
Infections rising sharply in Brazil & Mexico The number of cases of the coronavirus has continued to rise across Latin America. On the plus side, there are some early signs that the infections curve may be flattening in Argentina, Peru and Chile (see …
9th April 2020
Large fall in inflation means Copom to ease further The larger-than-expected fall in Brazilian inflation, to 3.3% y/y last month, adds to reasons to think that Copom will cut the policy rate by another 50bp (to 3.25%) when it meets in early May. The …
With the Central Bank of Chile’s policy rate at its effective lower bound, we think that its next easing measure would be a quantitative easing programme aimed at flattening the long end of the yield curve. Chile’s central bank has eased policy …
8th April 2020
Inflation easing, more rate cuts on the way The larger than expected fall in Mexican inflation in March, to 3.3% y/y, should ease near-term concerns at the central bank about the impact of the weakness of the peso on prices. More importantly, with the …
7th April 2020
The effects of the coronavirus will push Argentina's economy into an even deeper recession and make the government more tempted to unilaterally halt payments on its international bonds. While we think that an amicably negotiated solution to Argentina's …
Mexico collapsing The early data for March supported our view that Mexico’s economy is suffering a dramatic fall in output. The production components of the IMEF surveys suggest that conditions were at least as bad as they were during the depths of the …
3rd April 2020
Last month’s survey data for Brazil and Mexico don’t capture most of the impact of the ramping up of social distancing measures in the second half of March, but they still suggest that both economies are heading towards deep recessions. Indeed, the …
2nd April 2020
Chile’s central bank suggested that, having cut its policy rate to 0.5% yesterday, rates will remain at this low level for an extended period of time. But given the scale of the economic hit from the coronavirus, we think that the policy rate will, …
1st April 2020
Policymakers in Peru and Chile have been quick to introduce economic policy and containment measures in response to the coronavirus, but peers elsewhere – particularly in Brazil and Mexico – have made less progress. This increases the risk that regional …
31st March 2020
The cost of the coronavirus will push Brazil’s public debt ratio up sharply this year, to about 90% of GDP, and policymakers will have their work cut out to stabilise the debt trajectory in the following years. One increasingly likely policy response is …
30th March 2020
Brazil’s response lagging Confirmed cases of the coronavirus have surged to nearly 3,000 in Brazil over the past week, and the stumbling response from the presidency could deepen and prolong the economic damage. The governments of some of the largest …
27th March 2020
Latin American economies are facing a perfect storm of tightening financial conditions, low commodity prices and a collapse in services activity caused by social distancing. The fall in regional GDP this year will be as steep as it was during the Global …
Mexico’s economy is likely to suffer a similar fall in output this year as it did during the Tequila Crisis and the Global Financial Crisis. Despite its reticence, the government will ultimately have to do much more to prevent this from causing a sharp …
25th March 2020
Weaker inflation gives scope for more Copom easing The further fall in Brazilian inflation in the middle of March will allow the central bank to lower the Selic rate by a further 50bp in the near term. But the scope for aggressive easing is limited. The …
Above-target inflation won’t prevent further Banxico cuts Despite Mexican inflation remaining above target in early March, we think that Banxico will follow up its emergency 50bp rate cut last week with around 200bp of further easing in the coming …
24th March 2020
The turmoil in Latin American currency markets will push up inflation, particularly in Brazil, Mexico and Colombia, and it already appears to have resulted in strains in corporate bond markets. One consequence is that the region’s central banks may not be …
23rd March 2020
Regional GDP to fall We now think that the growing economic damage caused by the coronavirus will result in falls in GDP across the region. Interest rates will be lowered much further too. The economic headwinds facing the region have increased …
20th March 2020
The Brazilian central bank’s (BCB’s) statement accompanying last night’s decision to cut the Selic rate by 50bp was surprisingly cautious and suggested that further easing isn’t on the cards. With the effects of the coronavirus on Brazil’s economy likely …
19th March 2020
Financial conditions have generally tightened more in Latin America (particularly Mexico) than in the rest of the emerging world in recent weeks. This presents another reason to think that activity will weaken dramatically in the coming months, alongside …
18th March 2020
Revising down our growth forecasts Latin American countries have, so far, suffered relatively few confirmed cases of the coronavirus. At the time of writing, containment measures have generally been limited to quarantines for travellers from afflicted …
13th March 2020
The fall in oil prices has increased default risk in Ecuador. But given the government’s track record of fiscal austerity and the possibility of further multilateral financial support, the likelihood of imminent default seems to be lower than markets are …
11th March 2020
Inflation edges down, rate cut likely The modest decline in Brazilian inflation, to 4.0% y/y, probably gives Copom leeway to lower the Selic rate by 25bp when it meets next week, despite the fall in the real. The outturn was down from 4.2% y/y in January, …
The latest fall in oil prices will aggravate Venezuela’s crisis and increase the risk of a sovereign default in Ecuador. Elsewhere, there is likely to be a hit to growth in Mexico and Colombia. And weaker currencies in both countries will take interest …
9th March 2020
Inflation jumps, but policymakers will be watching peso Given rising inflation and the sharp fall in the peso, we no longer think that the Bank of Mexico will cut its key rate this month in line with the Fed. Policymakers will probably leave rates on …
Brazil: disappointment in 2019 The Brazilian Q4 GDP data released this week confirmed that 2019 was another year in which the economy fell short of expectations. (See here .) Output rose by 1.1% in 2019; expectations had started the year at more than 2%. …
6th March 2020
The Brazilian real has fallen to a record low and, while our central view is that it will recover some lost ground in the second half of the year, it will remain much weaker than most currently anticipate. The real has now weakened by 12% against the …
5th March 2020
Headwinds growing Brazil’s relatively strong 0.5% q/q GDP growth rate recorded in Q4 masked a sharp loss of momentum late in the quarter. Taken together with growing headwinds from the effects of the coronavirus more recently, we think the central bank …
4th March 2020
The spread of the coronavirus has prompted us to revise down our forecasts for the global economy . This Update sets out the revisions to our views for Latin America in more detail. Policymakers generally have limited scope to respond, but we have …
3rd March 2020
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
Bolsonaro-Congress tensions rising Mounting global coronavirus fears this week, including the first reported case in Brazil, has put the real and Bovespa under pressure. But this is only part of the story. The real in particular was underperforming its EM …
28th February 2020
Latin American currencies and equities have been among the worst performers in the emerging world this month as fears about the spread of the coronavirus have intensified. The region has limited direct economic ties with the countries suffering outbreaks …
27th February 2020
Fears about the coronavirus have weighed on oil prices and clouded the near-term outlook for Colombia’s economy. But even if – as we expect - the virus is brought under control soon and oil prices recover, growth will probably be a lot weaker than most …
24th February 2020
Inflation picks up, easing cycle will end sooner than most expect Stronger headline inflation in early February was mostly due to food prices; core inflation remained stable. Even so, we think that the persistence of above-target inflation will limit …
Brazil: BCB showing concerns about growth Moves by Brazil’s central bank (the BCB) this week suggest that policymakers are shifting their attention to the weakness of the economy. On Thursday, the BCB announced that it would lower the required reserve …
21st February 2020
Growth to recover as policy is loosened We think that the slowdown in Peruvian GDP growth from 3.2% y/y in Q3 to 1.8% y/y in Q4 will be temporary and expect that the economy will recover more quickly than most expect this year. The headline Q4 GDP figure …
The IMF’s (belated) announcement that Argentina’s public debt is “unsustainable” removes any doubt that private bondholders will need to stomach large haircuts in a restructuring. But investors are unlikely to accept those anytime soon, and we think that …
20th February 2020
Inflation edges down, policy to stay loose The modest fall in Brazilian inflation in the middle of the month, to 4.2% y/y, confirmed that it has passed its peak. The headline rate is likely to edge down further over the course of the year, allowing the …
Growth to slow further from here Colombian GDP growth ticked down to 3.4% y/y in Q4 from 3.5% y/y in Q3 and we think that growth will slow further this year. The consensus expectations for growth look too optimistic. The Q4 outturn was stronger than our …
14th February 2020
Further falls in store for the real Intervention by the Brazilian central bank seems to have stemmed the fall in the real over the past 24 hours. But even if the recovery continues in the next few weeks, we think the currency will end the year weaker than …
