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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 …
Latin American dollar bonds have performed relatively well since fears related to the coronavirus started to weigh on the region’s financial markets. But if commodity prices and currencies in the region remain weak, dollar bond spreads are likely to widen …
11th February 2020
Grim end to a weak year Mexico’s industrial sectors weakened again in December, capping a poor year and creating a weak starting point for 2020. The available surveys suggest that conditions remained difficult more recently. Figures released today showed …
Bad week for Argentine policymakers Policymakers in Argentina faced two setbacks this week, which have weakened their hand in debt restructuring talks with creditors. First, the province of Buenos Aires (PBA) made a $250mn capital payment on Wednesday, …
7th February 2020
Inflation up in Mexico, down in Brazil The rise in Mexican inflation from 2.8% y/y in December to 3.2% y/y in January supports our view that, while the central bank will cut interest rates further, the easing cycle won’t go as far as markets are pricing …
The Brazilian government’s plans to enshrine full central bank independence in law would help to both keep longer-term inflation expectations low and bring down real interest rates. This adds to the reasons to think that local currency bond yields will …
6th February 2020
The statement accompanying the Brazilian central bank’s meeting last night gave a clear steer that the easing cycle is now over. With growth likely to stay weak and inflation low, we expect that the Selic rate will be left unchanged for much longer than …
Industry stumbling in Q4 The larger-than-expected 0.7% m/m fall in Brazilian industrial production in December provides further evidence that the economic recovery was stumbling at the end of last year. This reinforces our view that Copom will opt for a …
4th February 2020
The province of Buenos Aires could feasibly default on a $250mn payment on Wednesday. In this Update , we answer three key questions about the current situation, the possible outcomes for Argentina’s largest province, and the implications for the …
3rd February 2020
Brazil: BCB governor opens door to another cut Dovish comments from Brazil’s central bank governor and the continuing shift in market expectations have prompted us to pencil in a 25bp interest rate cut next Wednesday. At the last meeting in December, …
31st January 2020
The decline in energy and metals prices caused by concerns about the coronavirus took a heavy toll on the region’s financial markets in the last few weeks. The Brazilian and Chilean currencies have been the worst performers in the emerging world this …
30th January 2020
Mexico dodged another technical recession in Q4, we think that the weakness seen in the later months of last year will persist into 2020, causing growth to fall far below consensus expectations. Provisional figures released today showed that Mexico’s …
We expect that Chile’s central bank will cut interest rates later this year, and that this will push local currency bond yields down over the next 12 months. But with the demands of protestors likely to result in looser fiscal policy and a larger rise in …
29th January 2020
More clues on Argentina’s restructuring There were three key signs this week that the Argentine government’s deadline of March 31 st for a sovereign debt restructuring is unlikely to be met. First, a debt swap on over $1bn worth of peso-denominated …
24th January 2020
Inflation ticking up The above-target Brazilian inflation reading for the middle of January reduces the chance of an interest rate cut next month. Mexican inflation also rose, supporting our expectation of a short easing cycle. Brazil’s mid-month …
23rd January 2020
Overview – Growth in most Latin American economies should strengthen in 2020, but we expect that these recoveries will be slow and fragile. Indeed, the region is likely to be the worst performing part of the emerging world again this year. Inflation will …
21st January 2020
The gloss coming off Brazil The latest Brazilian activity data have taken some of the shine off the economic recovery. Industrial production figures released last week showed that output fell in November, and other data published in the last few days also …
17th January 2020
The prevailing view that this will be the year when Brazil’s recovery finally shifts up a gear looks overly optimistic. We expect that GDP growth will come in at just 1.5% over 2020, which leaves us close to the bottom of the consensus range. ‘This year …
14th January 2020
Chilean peso weakens, will gain later this year While most EM currencies tumbled this week following the assassination of Iranian General Qassem Soleimani, the Chilean peso fell furthest. Having strengthened from a trough of 837/$ to 750/$ over the course …
10th January 2020
Brazil’s inflation jump takes further easing off the table Strong Brazilian inflation – which jumped to 4.3% y/y last month – and signs that the economy is on a firmer footing, suggest that the further interest rate cuts some still expect in early 2020 …
Inflation eases, industrial production slips Mexican inflation eased again in December, supporting our view that policymakers will continue to cut rates this year. Elsewhere, the larger-than-expected 1.2% m/m fall in Brazilian industrial production in …
9th January 2020
Spike in inflation will be temporary, rate cuts likely by end year The rise in Chilean inflation to 3.0% y/y in December is likely to be followed by a further increase to around 4.0% y/y over the first half of this year. That said, this period of …
8th January 2020
Argentine policymakers resorting to old tricks There is a sense of déjà vu about recent Argentine policymaking. Deficit monetisation is back, despite Economy Minister Martín Guzmán’s warning last month that it is a destabilising tool. The central bank has …
3rd January 2020
Inflation soft but limited rate cuts ahead The fall in Mexican inflation to 2.6% y/y in the first two weeks of December, from 3.0% in the full month of November, will pave the way for Banxico to continue its easing cycle in the coming months. That said, …
23rd December 2019
Argentina: Maturity extensions not bold enough The government stated today that it will postpone around $9bn of upcoming payments on Treasury bills (known as Letes) until August 2020. This is not hugely surprising. Most upcoming payments were due on …
20th December 2019
Inflation jump takes further easing off the table The sharp rise in Brazilian inflation, to 3.9% y/y in the first half of December, from 2.7% a month earlier rules out another interest rate cut at the next central bank meeting in February. The mid-month …
The last round of economic data released in 2019 pointed to a mixed performance in Latin America. Growth seems to have remained robust in Colombia in Q4 – and to have strengthened in Brazil – but activity faltered elsewhere. For the region as a whole, …
19th December 2019
To mark the new year, our various teams have published a series of key calls notes setting out what to watch for in 2020. This Update wraps up some of our key views for Latin America. First, growth is likely to disappoint in 2020 . Economies across the …
18th December 2019
Protests in Chile will probably result in a shift towards permanently looser fiscal policy. But it would take a long time for the debt ratio to become a concern, so any corresponding rise in bond yields over the next five years is likely to be fairly …
16th December 2019
