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After loosening policy again yesterday, Mexican policymakers will probably cut rates by another 75bp over the coming six months. Given that the US loosening cycle now seems to be at an end, market expectations – which point to 150bp of cuts – seem to have …
15th November 2019
The sharp fall in the Chilean peso today amid widespread strikes will push up inflation although, with the central bank focused more on the hit to the economy, further interest rate cuts are still likely. There is a growing risk that the unrest lasts for …
12th November 2019
Manufacturing headwinds will grow Mexican industrial production stagnated in September, and problems in the auto sector probably caused conditions to deteriorate further in October. This adds to the pressure for policymakers to cut their key rate in …
11th November 2019
Brazil: Reforms accelerate, oil auction stalls President Jair Bolsonaro’s government announced new constitutional reforms this week, which we think will improve the management of fiscal policy. The plans would rebalance the distribution of resources …
8th November 2019
The statement accompanying yesterday’s decision by Peru’s central bank to cut interest rates made it clear that this did not mark the beginning of a prolonged easing cycle. With inflation and economic activity likely to gradually rise, we expect the …
There is a good chance that protests caused GDP to contract in Q4. While we expect growth to strengthen by next year, the weak starting point from Q4 has prompted us to revise down our 2020 growth forecast from 3.5% to 2.5%. We are currently forecasting …
7th November 2019
Lower inflation keeps door open to easing The fall in Brazilian inflation to 2.5% in October, one of the lowest rates on record, makes another 50bp cut in the Selic rate at December’s Copom meeting almost certain. That said, policymakers have given a …
The fiscal package presented to Brazil’s congress yesterday shows that the government is not resting on its laurels after its successful pension reform. However, the good news on fiscal reform already seems to be priced in, suggesting that there’s little …
6th November 2019
Colombia’s economic recovery since 2017 has been in large part due to strength in private consumption, but we think it will likely slow in the coming quarters. This is one reason why our 2020 growth forecast sits at the bottom of the consensus range . …
4th November 2019
Argentina: Fernández uncertainty a bad sign The victory for Peronist Alberto Fernández in Argentina’s presidential election on Sunday provoked a small negative shock in local financial markets. The peso has held up, though, largely due to the drastic …
1st November 2019
A bumpy recovery The weaker-than-expected 0.3% m/m rise in Brazilian industrial production in September serves as a reminder that, while the economy is now strengthening, it will be a weak and bumpy recovery. The outturn was in line with our forecast but …
Political risk grabbed the headlines this month, with protestors taking to the streets across the Andes and Argentina electing a new Peronist president. Demonstrations in Ecuador and Chile will weigh on growth in Q4 and have already forced policymakers to …
31st October 2019
The statement accompanying last night’s Copom meeting gave a clear signal that there will be just one more 50bp interest rate cut in the current cycle (to 4.50%), which should temper expectations in the market for more aggressive rate cuts in the next few …
Weak recovery to spur further rate cuts The meagre 0.1% q/q rise in Mexican GDP in Q3 makes another interest rate cut at the next central bank meeting in November almost certain. The data release increases the likelihood of a larger 50bp cut. The 0.1% q/q …
30th October 2019
Ecuador’s government has successfully stabilised the debt-to-GDP ratio, and it remains committed to IMF plans to cut the public debt ratio to just 30% of GDP. But the president’s climbdown in the face of protests has highlighted the fragility of the …
29th October 2019
There is still a lot of uncertainty following Alberto Fernández’s widely-expected victory in Argentina’s presidential election, but one point we would stress is that a large debt write-down will ultimately be required during Mr. Fernández’s presidency. …
28th October 2019
Brazil: Pension law unlikely to launch reform wave President Jair Bolsonaro won a major victory this week when the senate gave final assent to his pension reform bill. The new law, which imposes a higher retirement age and increases workers’ …
25th October 2019
Inflation remains soft, rate cuts ahead Mexican inflation remained at 3.0% y/y October, which supports our view that policymakers will cut their key rate from 7.75% to 7.25% by the end of this year. Figures released today showed that Mexican inflation …
24th October 2019
Chilean policymakers’ decision to cut their key interest rate by 25bp yesterday and the dovish tone of the accompanying statement supports our view that the easing cycle has further to run. We continue to expect 25bp of cuts by year-end, and a further …
Left-wing Peronist Alberto Fernández is widely expected to win Sunday’s presidential election, and we think that his tenure would be marked by more accommodative policy, persistently high inflation, further large currency falls and a large debt …
23rd October 2019
Brazil’s pension reform bill should help to stabilise the public finances and lift a dark cloud over the outlook. The government has a long to-do list of further fiscal reforms, although the political situation suggests that some of these will be delayed, …
22nd October 2019
50bp cut almost certain now The fall in Brazilian inflation to 2.7% y/y in the middle of October, one of its lowest rates on record, means policymakers will (barring any hiccups in the final vote on pension reform later today) almost certainly cut the …
As things stand, there are reasons to think that the protests that erupted in Chile in recent days will have a relatively small impact on the economy and financial markets. The central bank is likely to look through the political turmoil and cut the …
21st October 2019
Mexico: Counting the cost of the GM strike The knock-on effects of the strike by GM auto workers in the US mean the Mexican manufacturing figures due in the coming months will make for grim reading. But if GM’s deal with striking workers is approved, the …
18th October 2019
The shift in market expectations in Brazil towards much larger interest rate cuts by early 2020 now looks overdone. However, expectations for the Selic rate over a longer time horizon (2-5 years) look too high . There is a growing debate about how far …
17th October 2019
Overview – After a weak 2019, we expect that growth across most of Latin America will improve next year. That said, our forecasts for the regions two biggest economies – Brazil and Mexico – are below consensus. And Colombia and Argentina will miss out on …
16th October 2019
Crisis in Ecuador rages on Intensifying anti-austerity protests in Ecuador caused bond spreads to widen this week and threaten to dilute the government’s agenda. For now, though, we think that the government will be able to navigate this turmoil with …
11th October 2019
Manufacturing weakness is here to stay Mexican industrial production rose by a surprisingly brisk 0.8% m/m in August, but with the key manufacturing sector facing a slowdown, we expect that conditions for industry as a whole will remain weak later this …
The monetary transmission mechanism in Brazil seems to have weakened recently, which is likely to prevent the sharp fall in market interest rates seen since 2017 from feeding through to a significant pick-up in credit growth. The recovery in bank lending …
10th October 2019
Inflation surprise puts another 50bp cut on the table The fall in Brazilian inflation to a weaker-than-expected 2.9% y/y last month opens the door to another 50bp cut in the Selic rate when Copom meets at the end of this month. The outturn for September …
9th October 2019
Weak inflation adds to case for November rate cut Mexican inflation eased to a three-year low of 3.0% y/y in September, which strengthens our view that policymakers will cut their key rate from 7.75% to 7.25% by the end of the year. Full-month figures …
Peru’s constitutional crisis easing, for now The political turmoil that erupted in Peru earlier this week now seems to be fizzling out. President Martín Vizcarra swore in a new cabinet on Thursday and the electoral authority has announced the date of new …
4th October 2019
Worsening relations between the Brazilian presidency and legislature threaten to delay the much-vaunted pension bill and will keep markets on tenterhooks in the coming weeks. It still looks like the reform will be approved, but the latest events suggest …
3rd October 2019
Chile’s economic slowdown this year was mostly due to weaker private consumption, caused by a fall in consumer confidence. But with the labour market strengthening and copper prices likely to rise next year, we expect that consumer spending growth will …
The dissolution of congress by President Martín Vizcarra and his heated stand-off with the opposition will likely cause a sell-off in markets and further political gridlock. But as things stand, we doubt that this will prevent Peruvian GDP growth from …
1st October 2019
Further signs of recovery The better-than-expected 0.8% m/m rise in Brazilian industrial production was driven by rapid growth in the mining sector, which won’t be sustained. Even so, the figures add to the evidence that the economic recovery gathered …
The central banks of Brazil and Mexico loosened policy this month, and we expect that they will continue to cut rates in Q4. Inflation in both countries is below target, and both economies are struggling and in need of policy support. In Mexico, dovish …
30th September 2019
Brazilian households on the rise… Figures published this week support our view that Brazilian households should help to drive a modest economic recovery over the coming quarters. The first positive surprise in the incoming data came from the payrolls …
27th September 2019
Mexican policymakers cut their policy rate from 8.00% to 7.75% yesterday, and we think that they will continue to loosen policy over the coming quarters. We now expect a 25bp cut in both of the remaining meetings this year, taking the rate to 7.25% rather …
Inflation below target, and set to remain low The Brazilian mid-month inflation figure of 3.2% y/y in September leaves the door open to further monetary easing over the coming months. Beyond that, the large output is likely to keep inflation below target …
24th September 2019
Softer inflation adds to argument for another cut Mexican inflation eased very slightly over the first half of September, supporting our view that policymakers at the central bank will cut their key rate from 8.00% to 7.75% on Thursday. Figures released …
President Nicolas Maduro’s attempts to control inflation have had some effect, but without more severe measures we think that price pressures will probably remain extremely high over the coming months. After peaking at 350,000% y/y in January, Venezuelan …
23rd September 2019
Argentina’s Q2 GDP figures largely moot Data released this week showed that Argentina’s recession eased in Q2, but more timely figures point to a sharp downturn in Q3 and Q4. The headline from Thursday’s Q2 GDP release – that the pace of contraction eased …
20th September 2019
The Brazilian central bank’s decision to cut the Selic rate by 50bp last night was accompanied by a statement clearly signalling that policymakers intend to ease monetary policy further. As a result, we now expect another 25bp cut in October. The 50bp cut …
19th September 2019
The Brazilian government’s tax and budget reform plans would, if implemented, significantly improve the country’s longer-term fiscal health and productivity growth. But the proposals will face more opposition than the government’s recent efforts to …
18th September 2019
Mexico waking up to Pemex’s problems The $5bn cash injection for Pemex announced by Mexico this week adds to signs that policymakers may finally be starting to acknowledge the gravity of the problems at the state energy company. (For more on these issues, …
13th September 2019
Latin American currencies are likely to weaken further in the coming months alongside most EM currencies. But while we expect the Chilean peso and Peruvian sol to end next year stronger than their current level, the Brazilian real and Colombian peso will …
11th September 2019
Industry remains in the doldrums The 0.4% m/m fall in Mexican industrial production in July adds to our view that economic activity remains subdued and Banxico will cut interest rates later this month. The decline in industrial production in July was …
The 2020 budget presented by Mexico’s finance ministry at the weekend suggests that there will be a tilt towards providing modest stimulus to the struggling economy. But the big picture is that the government is continuing to pursue fiscal discipline, …
9th September 2019
Falling inflation seals the deal for September rate cut The sharp drop in Mexican inflation from 3.8% y/y in July to 3.2% y/y in August is likely to be followed by further falls over the rest of the year. That should pave the way for more monetary easing …
