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Further fall in inflation keeps August rate cut in play The further fall in Mexican inflation in July, to 3.8% y/y, keeps an interest rate cut at next week’s policy meeting on the table. It will be a close call, but on balance we think the central bank …
8th August 2019
Large Mexico stimulus raises fiscal risks The large fiscal stimulus unveiled by Mexico’s new finance minister this week will support activity, but it raises medium-term fiscal risks. We always argued that the change of finance minister last month was …
2nd August 2019
Slipping into recession The 0.6% m/m fall in Brazilian industrial production in June adds to the evidence that GDP contracted again in the second quarter. We expect a recovery in the second half of the year, but it will be slow going. June’s outturn was …
1st August 2019
The Brazilian central bank’s larger-than-expected 50bp reduction in the Selic rate last night to 6.00%, and hints of more stimulus, have prompted us to pencil in an additional two 25bp rate cuts this year. We now expect the Selic rate to end this year and …
Mexico (maybe) dodged recession, but rate cut coming next month Preliminary GDP data suggesting that Mexico escaped a technical recession by the skin of its teeth in Q2 don’t change the bigger picture that the economy remains very weak. This supports our …
31st July 2019
Mexico: avoiding a recession…just Mexico’s preliminary Q2 GDP figures due next week are likely to show that the economy stagnated, dodging a technical recession. But whether the growth figure is above zero or not, the key point is that the economy is …
26th July 2019
A number of major central banks in Latin America are on the cusp of joining the global easing cycle but, in contrast to the prevailing view, we don’t think that Colombia will be one of them. We expect a weaker Colombian peso to push inflation up in the …
25th July 2019
The case for interest rate cuts across Latin America has strengthened in the past month, partly because of the dovish shift by the Fed, but also because of soft domestic inflation and growth. Policymakers at central banks in Chile and Mexico struck a …
Further fall in inflation strengthens case for August rate cut The further fall in Mexican inflation in the first half of this month, to 3.8% y/y, makes an interest rate cut at the central bank’s next policy meeting on 15 th August increasingly likely. …
24th July 2019
Inflation falls, rate cuts coming The fall in Brazilian inflation to 3.3% y/y in the middle of July surely seals the deal on a rate cut at the Copom meeting next week. Moreover, with underlying price pressures weak, policymakers are likely to be able to …
23rd July 2019
Mexican government unwilling to fix Pemex The Mexican government’s underwhelming business plan for Pemex, announced this week, reinforces our view that it is not willing to implement the reforms necessary to stabilise oil production. Against that …
19th July 2019
One key point contained in the IMF’s latest quarterly review of Argentina’s bailout programme is that the Fund is now expecting the government to run a primary deficit this year (having expected a balanced budget previously). While this will have little …
16th July 2019
With budget deficits still large in Brazil and Argentina, fiscal policy there will continue to be tightened over the coming years. But small budget deficits in Mexico, Chile and Peru mean that governments there now have scope to loosen the purse strings. …
15th July 2019
Banxico likely to begin cutting rates next month The minutes to the last Mexican central bank meeting, published yesterday, revealed a more dovish shift on the Bank’s Board than we had expected. We now think that an interest rate cut at the next meeting …
12th July 2019
Overview – After a terrible start to the year, we expect economic growth in Latin America to pick up over the next 12-18 months. However, recoveries in most cases will be weak. Indeed, our GDP forecasts for many countries, including the region’s two …
Production collapse strengthens case for August rate cut The much larger-than-expected drop in Mexican industrial production, of 2.1% m/m, reinforces our downbeat view on the economy, and is likely to push the central bank towards cutting interest rates …
The large margin of victory for Brazil’s pension bill in its first vote in the lower house last night is likely to result in a rally in local markets later today, and makes an interest rate cut at the Copom meeting this month a done deal. We have also …
11th July 2019
Inflation back below target opens door to easing The sharp drop in Brazilian inflation to 3.4% in June, which took it below the central bank’s target, suggests that policymakers will soon start to ease monetary policy. Barring any major hiccups with the …
10th July 2019
Brazil’s pension reform bill would, if passed in its current form, reduce vulnerabilities stemming from the dire public finances. But we are sceptical that it would lead to the near-term turnaround in the economy that some seem to expect. The pension …
9th July 2019
Inflation now falling sharply The large drop in Mexican inflation, from 4.3% y/y in May to 3.9% y/y in June, is likely to be followed by another sizeable fall this month. That should see Banxico inch further towards interest rate cuts, with an easing …
Pension reform progressing but hurdles remain Brazil’s much-vaunted pension reform passed an important legislative hurdle this week, although the bill is likely to come up against more substantial resistance in the coming weeks. After various delays and …
5th July 2019
Slipping into recession The fall in Brazilian industrial production in May, of 0.2% m/m, adds to the evidence that the economy fell into a technical recession in Q2. With inflation also easing, an interest rate cut seems likely as soon as the Copom …
2nd July 2019
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
