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The preliminary trade deal between Mercosur (Brazil, Argentina, Uruguay and Paraguay) and the EU, if implemented in full, would boost potential growth in the bloc, perhaps by as much as 0.75-1.0%-pt. But with a lengthy phase-in period for some measures, …
1st July 2019
Brazil pension reform: glass half…empty? It’s been a noisy week in Brazilian politics but, while the chances of some kind of pension reform being approved this year have risen, the flipside is likely to be smaller fiscal savings. Reports at the start of …
28th June 2019
Investors have rapidly come round to our dovish view on Latin American monetary policy but, if anything, they have probably now gone too far in anticipating large rate cuts across the region over the next year or so. Brazil’s Copom is likely to trim the …
25th June 2019
Inflation drop and newsflow on pensions tips balance towards July cut The sharp fall in Brazilian mid-month inflation, from 4.9% y/y in May to 3.8% y/y in June, coming alongside positive newsflow surrounding pension reform, tips the balance towards a 25bp …
Market expectations for interest rate cuts in Colombia are growing, but the country’s large current account deficit means that we think any easing would probably prove to be a policy mistake. Elsewhere, Argentine financial market have rallied strongly …
21st June 2019
Argentina’s recession eased in Q1 and our GDP Tracker suggests that the economy returned to positive growth in Q2, but the recovery will be weak and the unemployment rate looks set to rise further. President Macri still faces an uphill struggle to be …
20th June 2019
The Brazilian Central Bank’s (BCB’s) cautious statement from last night’s meeting will disappoint the markets, which had expected Copom to lay the ground for the start of an easing cycle. With the economy probably now in recession and inflation falling, …
One point being overlooked in the debate surrounding the sustainability of Argentine sovereign debt is that there is a significant risk of default even if an investor-friendly candidate wins October’s presidential election. We think some form of debt …
17th June 2019
The weakness of the Brazilian economy and rapidly falling inflation mean we now expect an interest rate cut, and we think there is a window of opportunity for Copom to act at next week’s meeting. Elsewhere, the outcome of this week’s political jostling in …
14th June 2019
The weakness in growth across Latin America in Q1 largely reflected a coincidence of shocks, and probably won’t last. Even so, the weak carryover has prompted us to revise down our (already below- consensus) 2019 GDP growth forecasts, by around 0.5%-pts …
13th June 2019
The stronger-than-expected expansion in Mexican industrial production in April, of 1.5% m/m, suggests that, after a disappointing Q1, GDP growth will recover in Q2. … Mexico Industrial Production …
11th June 2019
We think that the surprise decision by Chilean policymakers to cut the policy interest rate by 50bp on Friday night to 2.50% will prove to be a one off. Interest rates are likely to remain unchanged at their current level until the end of next year. … …
10th June 2019
Mexico has yet to strike a deal with the US to prevent tariffs being imposed on Monday, but one crumb of comfort is that (so far at least) financial conditions haven’t tightened significantly. Elsewhere, Brazil’s pension reform is nearing the next stage – …
7th June 2019
The small decline in Mexican inflation, to 4.3% y/y in May, confirms that the headline rate has passed its peak. Even so, concerns about the prospect of US tariffs, as well as the recent credit rating downgrade of Pemex and the sovereign, will probably …
The fall in Brazilian inflation, to 4.7% y/y in May, is set to be followed by further declines, taking it below the central bank’s target. So long as the economy recovers from its recent weak patch, the central bank is likely to refrain from cutting …
Brazil’s recovery from its 2015-16 recession has been exceptionally weak by historic standards, and many of the factors which have held back growth are unlikely to unwind any time soon. Indeed, as things stand, we expect that real GDP will only return to …
5th June 2019
The weakness of Brazilian industrial production, which expanded by just 0.3% m/m in April, was in part a result of a fall in output in the mining sector, which should unwind in the coming months. Even so, the economy is still clearly very soft and it …
4th June 2019
One factor that has been missed amid the growing debate about the weakness of Brazil’s economy is the continued slump in investment and, more worryingly, the fact that there is little prospect for a recovery. In the meantime, the softness of the …
31st May 2019
There’s plenty of uncertainty about whether the tariffs on all US imports from Mexico announced last night by President Trump will be introduced and rise to the full 25%. The impact of the starting tariff rate of 5% on Mexico’s economy would probably be …
The 0.2% q/q fall in Brazilian GDP in Q1 was, in part, the result of temporary factors including a sharp drop in iron ore output. But the early signs are that growth in Q2 has been very weak too and there is now a real risk that the economy will slip into …
30th May 2019
The raft of GDP data released this month showed that regional growth slowed to just 0.3% y/y in Q1 (from 1.0% y/y in Q4), the weakest pace in two years. While it doesn’t look like sluggish growth will prompt an immediate shift towards interest rate cuts, …
29th May 2019
Argentine inflation is close to a peak and should ease in the coming quarters. But bringing inflation down to single digits will require a reduction in wage indexation, improvements in the central bank’s credibility and high real interest rates. History …
28th May 2019
Investors have largely welcomed the decision by populist and anti-IMF former president, Cristina Fernández de Kirchner, to run for vice president (rather than the top job) in Argentina’s election in October, but this market reaction seems complacent. …
24th May 2019
The carryover from the weak Q1 Mexican GDP growth figure has prompted us to revise down our growth forecast for this year to 1.8% (our 2020 forecast is unchanged at 1.5%). Slow growth increases the likelihood that Banxico will bring interest rate cuts …
The softer-than-expected mid-month inflation Brazilian figure for May, of 4.9% y/y, suggests that the headline rate has now peaked, and we think it will fall back below the central bank’s target in the coming months. Copom will be under no pressure to …
The Colombian peso has been the worst performing EM currency so far this month and we expect it to fall by another 8% or so against the dollar by year-end. The resulting rise in inflation is likely to prompt more interest rate hikes than most currently …
23rd May 2019
Having risen in the last few months, Mexican inflation was unchanged at 4.4% y/y in the first half of May, supporting our view that the recent increase in the headline rate was temporary. We expect the headline rate to decline sharply from Q3, which …
The slowdown in Chilean GDP growth from 3.6% y/y in Q4 to 1.6% y/y in Q1 was due to weak domestic demand and problems in the copper sector, which hit exports. And while the consensus expects a strong recovery from here, we expect growth to remain weak in …
20th May 2019
The decision by populist and anti-IMF former president, Cristina Fernández de Kirchner, to run for vice president in October’s election (with a more moderate Peronist at the top of the ticket) has reduced the odds of a disorderly post-election default. …
Data released this week all-but-confirm that Brazilian GDP contracted in Q1 and it looks touch and go as to whether the economy entered a technical recession in Q2. Another fall in output this quarter would probably convince Copom to cut the Selic …
17th May 2019
The pick-up in Colombian GDP growth from 2.7% y/y in Q4 to 2.8% y/y in Q1 was driven in large part by robust domestic demand. While the consensus expects momentum to pick up this year, we expect growth to slow. … Colombia GDP (Q1 …
15th May 2019
Brazilian inflation has probably now reached a peak and the headline rate should fall below the central bank’s target in the coming months. With core inflation still extremely soft, the central bank is likely to keep the Selic rate unchanged at its …
14th May 2019
Data released this week confirming a further rise in Mexican inflation last month were eye-catching, but it looks like Easter effects were partly to blame. Elsewhere, dovish statements accompanying interest rate decisions in Chile and Peru this week …
10th May 2019
The much larger-than-expected contraction in Mexican industrial production in March, of 1.3% m/m, will diminish hopes of an upwards revision to the dire provisional Q1 GDP figure. With the economy clearly struggling, interest rate cuts will soon come onto …
The further rise in Brazilian inflation, to 4.9% y/y in April, is unlikely to trouble Copom. The increase was driven by food, energy and administered prices; core inflation still looks soft. The headline rate has probably now peaked and we expect it to …
The rise in Mexican inflation last month, to 4.4% y/y, is likely to mark the peak and we expect the headline rate to decline over the next few months. This, combined with weak economic activity, will pave the way for more interest rate cuts than the …
9th May 2019
Opposition to Brazil’s pension reform has, so far, been limited to fairly minor components of the bill. But it will face more substantial resistance in the coming months. Ultimately, our sense is that the savings anticipated by most market participants …
Copom’s statement from last night’s meeting highlighted that policymakers are not troubled at all by the recent jump in inflation and, rightly in our view, see it as temporary. If anything, they are more concerned about the weakness of the activity data. …
The collapse of Venezuela’s economy has placed strains on Colombia’s social welfare system but, if anything, it is actually likely to have a small positive impact on Colombian GDP growth. … Colombia: judging the impact of the Venezuelan …
7th May 2019
The decision by Argentina’s central bank to scrap the peso’s trading band and signal more FX intervention has shored up the currency this week but, sooner rather than later, markets are likely to test policymakers’ resistance to peso depreciation. We …
3rd May 2019
The larger-than-expected contraction in Brazilian industrial production in March, of 1.3% m/m, means that the Q1 GDP data are likely to be ugly. We’ll firm up our forecast when more data are released but, as things stand it looks like the economy may have …
The growing possibility of a lurch to the left in Argentina’s presidential election in October has rekindled sovereign default fears. While the government’s FX debt repayment schedule in the immediate aftermath of the election looks manageable, it becomes …
1st May 2019
Preliminary data showing a surprise 0.2% q/q contraction in Mexican GDP in Q1 made for ugly reading, and the risks to our above-consensus growth forecast for this year now lie firmly to the downside. That said, the dire data strengthen our case that the …
30th April 2019
The past month has seen political risks in key economies start to crystallise. The rout in Argentine markets, triggered by concerns about the dwindling re-election prospects of President Macri, has grabbed the headlines. But political risks are building …
29th April 2019
The broad-based sell-off in Argentine assets over the past week or so, triggered by growing political risks, has resulted in a sharp tightening of financial conditions, which will weigh on economic growth in the coming quarters. More worryingly, there is …
Argentine markets have stabilised today but, by our estimates, the aggressive sell-off earlier this week has resulted in the political risk premium on dollar bonds widening to around 200bp. We think that this premium is likely to persist, and may even …
26th April 2019
Argentine policymakers are likely to have been spooked by the rout in local markets in recent days, and the experience of the past few weeks suggests that they will be tempted to respond with more unorthodox measures. We think these would end up doing …
25th April 2019
The further rise in Brazilian inflation, to 4.7% y/y in the first half of April, was driven almost entirely by stronger food and fuel inflation. There are signs in the breakdown that inflation has now peaked. … Brazil IPCA-15 …
The larger-than-expected rise in Mexican headline inflation in the first half of this month, to 4.4% y/y, coming alongside a jump in core inflation, will temper talk of monetary easing in the coming months. But we still think that inflation will fall in …
24th April 2019
Brazilian President Jair Bolsonaro this week has shown further signs that he is less committed to market orthodoxy than many had hoped. For now, it seems that parts of the administration are working hard to keep investors on board. But it wouldn’t take …
18th April 2019
