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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 …
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
