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Chile’s short-term external debt burden is one of the largest in the emerging world, but there is more to it than meets the eye. A large chunk reflects intercompany lending, and most of this is concentrated in the mining sector. Accordingly, in contrast …
26th June 2018
The Mexican central bank’s decision to raise interest rates this week underscored its sensitivity to currency weakness and, while our base case is that this move will be a one-off, further falls in the peso in the coming months would clearly push the …
22nd June 2018
The latest sell-off in the Mexican peso tips the balance towards policy being tightened at Thursday’s central bank meeting. We’re changing our forecast and now expect a 50bp hike in the policy interest rate to 8.00%. In contrast, recent comments from …
19th June 2018
The victory for business-friendly candidate Iván Duque in Colombia’s presidential election looks largely priced in and should have a limited impact on local markets in the coming days. Investors will now turn their attention to the makeup of Mr Duque’s …
18th June 2018
The statement accompanying the decision by Chile’s central bank to hold its policy interest rate at 2.50% was slightly less dovish than its last, supporting our view that the central bank will shift into tightening mode over the next 6-9 months. … Chile …
14th June 2018
Mexico, as well as several smaller countries in Central America (including Nicaragua, Honduras and Costa Rica), are most vulnerable to a general escalation in US protectionism. But individual sectors in some countries – including aeronautics in Brazil – …
13th June 2018
The second consecutive monthly decline in Mexican industrial production in April was disappointing, but the data are volatile and must be viewed in the context of an economy that is performing well on the back of a robust services sector. We don’t think …
11th June 2018
Brazilian inflation ticked up from 2.8% y/y in April to 2.9% in May, due in part to the recent truck drivers’ strike, which has led to supply disruptions. And while the markets have responded to the recent drop in the real against the dollar by pricing in …
8th June 2018
Confirmation that Argentina has reached an agreement with the IMF over a financing package will help to restore investor confidence and provide a much-needed anchor for the country’s necessary economic adjustment. But sticking to the IMF’s conditions – …
Mexican inflation continued to fall in May, and while the markets have responded to the recent drop in the peso against the dollar by pricing in a 25bp hike at this month’s policy meeting, we’re sticking to our view for rates to remain unchanged at 7.50%. …
7th June 2018
The fall in the real over the past couple of months means that, judged on macroeconomic fundamentals at least, the currency no longer looks overvalued. The big risk over the next six months is that the outcome of October’s elections deliver another blow …
6th June 2018
The direct effect of Mexico’s new tariffs on imports from the US will be moderate. But the move will make the process of renegotiating Nafta even more difficult. The peso has fallen sharply in response and, if it falls further over the coming days, …
5th June 2018
The larger-than-expected 0.8% m/m rise in Brazilian industrial production is encouraging given the sector’s weak showing in Q1. But the trucker’s strike that paralysed the country for nine days last month means that this is likely to be reversed in the …
The rise in oil prices over the past six-nine months will have a mixed effect on economies in Latin America, with Colombia, Venezuela and Ecuador the biggest winners, and Chile the biggest loser. … What do higher oil prices mean for Latin …
4th June 2018
Argentina’s currency crisis has put the spotlight on the country’s growing economic fragilities, but vulnerabilities in the region’s other major economies have diminished in recent years. Current account deficits of most countries are now less than 2% of …
31st May 2018
The truck drivers’ strike that has paralysed large swathes of Brazil’s economy over the past nine days has generated some apocalyptic headlines and led many forecasters to slash their 2018 GDP growth forecasts. However, past experience suggests that any …
30th May 2018
The 0.4% q/q rise in Brazilian GDP in Q1 was modest but will go some way to allaying concerns that the economic recovery has stalled altogether. The truck drivers’ strike that has gripped parts of the nation in recent days will weigh on activity in May …
The victory for centre-right candidate Iván Duque in the first round of Colombia’s presidential election on Sunday was largely expected and, as such, has had little impact on local financial markets over the past 24 hours. Polls suggest that he is the …
29th May 2018
We expected 2018 to be a year of weakness for Latin American currencies, but the recent falls against the dollar have pushed a number of exchange rates through our year-end forecasts already. We’re wary of chasing the market but the balance of risks are …
25th May 2018
Despite the near-25% drop in the peso against the dollar so far this year, Argentina is not yet facing a sovereign debt crisis. The public debt ratio will rise this year, but not to an alarming level, and should stabilise if policymakers follow through …
23rd May 2018
Peru’s strong growth in Q1 supports our view that the recovery should continue in the coming quarters, and that GDP will grow by 3.5% over this year as a whole. … Peru GDP …
21st May 2018
The victory for Nicolás Maduro in Venezuela’s presidential election paves the way for an escalation of US sanctions – possibly on the oil sector – and a messy sovereign debt default and restructuring. The government and PDVSA’s debt repayment schedule …
Centre-right candidate Iván Duque looks set to win the first round of Colombia’s presidential election next week, and if he also prevails in the second round – as seems likely – he will inherit an economy slowly emerging from a downturn. His fiscal …
18th May 2018
The stronger-than-expected increase in Chilean GDP growth in Q1 was broad based and we expect the recovery to continue over the next year or so. Today’s data support our above-consensus forecast for GDP growth of 3.5% for this year. … Chile GDP …
The lesson from EMs that have been forced to turn to the IMF for financial support in the past is that Argentina will need a combination of front-loaded fiscal tightening, reforms at the central bank, high real interest rates and a weak currency to …
Following its near-20% drop so far this year, Argentina’s real effective exchange rate looks pretty close to its ‘fair’ value – we estimate that it probably needs to fall by a modest 5% or so from here. But high inflation relative to its trading partners …
17th May 2018
Colombian GDP growth picked up from 1.8% y/y in Q4 to 2.2% y/y in Q1, and we think the recovery will strengthen by more than the consensus expects this year. … Colombia GDP …
15th May 2018
There are some similarities between Argentina’s current crisis and 2001/02 crisis. But there are also critical differences, not least the fact that the peso is now free-floating and the authorities have control over their own monetary policy. As such, …
The recent weakness of Brazilian inflation appears to be due in part to persistently weak food inflation, but more importantly it looks like the large output gap in the economy has dragged down core inflation. As a result, while the headline rate will …
11th May 2018
March’s better-than-expected industrial production data from Mexico, which were the result of a surge in manufacturing output, support our view that GDP growth this year will be stronger than most expect. … Mexico Industrial Production …
The news that Argentina has started talks with the IMF over a full-blown bailout has masked the fact that – deal or no deal – the economy is likely to fall into recession this year. We now expect GDP to contract by 0.5% this year (vs. growth of 2.5% …
10th May 2018
Brazilian inflation ticked up to 2.8% y/y in April, but underlying price pressures are still subdued. Taking that together with softer economic activity figures, we think COPOM will cut the Selic rate again when it meets later this month. The markets now …
The further drop in Mexican inflation last month reinforces our view that the tightening cycle is over and that the next move in interest rates will be down. In contrast, the markets have responded to the recent drop in the peso by pricing in a fresh …
9th May 2018
The announcement yesterday that Argentina will seek an IMF deal has brought some relief to the peso, but it’s far from guaranteed that an agreement will be reached. More generally, talk of an IMF deal highlights something that we have been arguing for …
Today’s 675bp interest rate hike by the Argentine central bank, the third emergency hike in a week, finally seems to have brought some support to the currency. Evidence from other EM central banks that have been forced to hike rates when faced with …
4th May 2018
The small fall in Brazilian industrial production in March suggests that, over Q1 as a whole, the sector stagnated, adding to the evidence that GDP growth in Q1 was quite soft. But there are a number of reasons to think that growth – both in industry and …
3rd May 2018
Following intensive talks last month, a preliminary new Nafta deal appears to be within reach. While it could still struggle to pass through legislatures in each country, the deal that looks to be on the table is, from Mexico’s perspective, at the more …
The Argentine central bank’s interest rate hike at an unscheduled meeting on Friday has provided little relief for the peso, which is down by another 2.5% against the dollar today. Against a backdrop of growing economic vulnerabilities, the currency is …
2nd May 2018
Brazil’s economy has been losing momentum for several quarters, but it’s premature to think that the recovery is now over. Indeed, the conditions seem to be in place for growth to strengthen again in the coming months and our forecasts for 2018-19 sit …
The outlook for Mexico’s economy is, despite worries over Nafta renegotiations and an Andrés Manuel López Obrador presidency, brighter than many seem to think. We’ve revised up our forecasts and now expect GDP to grow by 3.0% this year and 2.8% next …
1st May 2018
The stronger-than-expected 1.1% q/q expansion in Mexican GDP in Q1 partly reflects the unwinding of some earthquake-related effects, but there are also signs of a broader rebound in activity. Today’s data mean the risks to our above-consensus forecast for …
30th April 2018
The decision by Colombia’s central bank to cut its policy interest rate on Friday night by 25bp (to 4.25%) probably marks the last move in the easing cycle. We expect the policy rate to be left unchanged over the rest of this year before being raised in …
The latest activity data suggest that Latin America’s economic recovery paused for breath in the first quarter of 2018. Our GDP Tracker points to growth of 2.5% y/y, unchanged from Q4. Activity data from Brazil have been soft, and Argentina’s economy …
27th April 2018
The sharp drop in the Brazilian real over the past month has, in our view, been driven more by local developments – including growing uncertainty over the outcome of October’s elections – than it has by a general deterioration in global risk appetite that …
25th April 2018
Argentina’s central bank left its policy interest rate unchanged at 27.25% last night, but the statement accompanying the decision struck a notably more hawkish tone and suggested that the easing cycle could reverse. We think policymakers will refrain …
The larger-than-expected drop in Mexican inflation in the first half of this month reinforces our view that the next move in interest rates will be down. That said, the recent slide in the peso – if sustained – will keep policymakers in hawkish mood for …
24th April 2018
The weak Brazilian mid-month inflation figure for April, coming alongside the stabilisation of the real in the past few days, means COPOM is likely to go ahead with another 25bp reduction in the Selic rate next month. However, this is likely to mark the …
20th April 2018
Left-wing populist Andrés Manuel López Obrador (AMLO) appears to have made headway in allaying investors’ fears of a dramatic shift in policy if he wins Mexico’s presidential election in July. But some of his proposals, particularly on the fiscal side, …
17th April 2018
There are still plenty of twists and turns that have yet to play out ahead of elections in Mexico and Brazil later this year. But developments over the past month mean we are becoming less concerned about the potential economic fallout in Mexico – and …
16th April 2018
Peru’s central bank left its policy interest rate unchanged at 2.75% last night and, while the statement gave little away regarding future moves, we think the easing cycle is probably over. … Peru rates on hold, easing cycle probably …
13th April 2018