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The Andean economies of Chile, Peru, and Colombia all appear to be close to raising interest rates. In this Update, we take a closer look at what has triggered central banks to begin tightening cycles in the past. The short point is that Chile’s central …
10th September 2018
The third consecutive monthly rise in Mexican inflation was driven by higher energy inflation, and is unlikely to spook Banxico. Accordingly, assuming the peso holds up reasonably well between now and the next meeting, the Board is likely to leave rates …
7th September 2018
The export tax announced by Argentina’s President Mauricio Macri this week, which formed the centrepiece of an emergency fiscal austerity package, will help to narrow the budget deficit. But the fact that more ambitious structural fiscal reforms on the …
The recent turmoil in local markets means that Argentina’s recession will be even deeper than we previously anticipated. We now expect a 4% drop in GDP over 2018 as a whole (vs. -0.5% previously), and a further 2% contraction next year. A sovereign …
6th September 2018
The decline in Brazilian inflation in August, to 4.2% y/y, adds to the reasons to think that Copom won’t raise interest rates at its meeting this month. Moreover, core inflation still looks quite soft and we think the pace of the eventual rate hikes over …
The statement accompanying the decision by Chile’s central bank to hold its policy interest rate at 2.50% flagged that a tightening cycle will begin in the coming months. We remain comfortable with our forecast for rates to begin rising at the next policy …
5th September 2018
The recent collapse in the Argentine peso has raised concerns about a sovereign default. As things stand, we think it’s most likely that the government will be able to service its upcoming debts. That said, failure to secure further IMF funding or fiscal …
4th September 2018
The small fall in Brazilian industrial production in July, of 0.2% m/m, provides further evidence that the economy’s recovery from the truck drivers’ strike in May has been soft. However, leading indicators do at least suggest that industry strengthened …
The sense of crisis that engulfed Argentina on Wednesday and Thursday seems to have eased today and, while there is a clear risk that the currency falls further in the near term, based on the real exchange rate it looks like the necessary adjustment may …
31st August 2018
The 0.2% q/q rise in Brazilian GDP in Q2 was a decent outturn given the disruptions to the economy caused by the truck drivers’ strike in late May. And growth is likely to strengthen in the second half of the year. However, downwards revisions to the …
The sell-off in the Argentine peso this month gathered pace after the government’s impromptu request to draw down more of its IMF bailout. Rather than soothing market tensions, this reinforced concerns about the government’s ability to service its debts. …
The Argentine government’s announcement that it wants to draw on more of its IMF bailout package reflects the harsh reality of large upcoming FX debt repayments, especially in November. But the collapse in the peso triggered by the news also highlights …
30th August 2018
The surge in GDP growth in Q2 to more than 5% in Chile and Peru probably marks the peak in both countries’ economic cycle. But there is still some spare capacity left. And, as a result, we expect that growth will remain strong in the coming quarters. Our …
29th August 2018
The preliminary bilateral trade deal between Mexico and the US, announced yesterday, is a far cry from the radical overhaul of the two countries’ trading relationship that many had feared. Tighter rules of origin and new labour content requirements in the …
28th August 2018
Today’s announcement of a bilateral trade agreement is definitely good news for Mexico and the US, but could be good or very bad for Canada. More generally, it illustrates that, despite the Trump administration’s intransigence over trade disputes in …
27th August 2018
A “handshake deal” between Mexico and the US on auto trade rules is apparently close, but several hurdles must be cleared before a new Nafta treaty is agreed. Elsewhere, Brazilian markets finally seem to be waking up to the risk of a populist victory in …
24th August 2018
Inflation in both Brazil and Mexico has been a bit higher than we had anticipated over the past few weeks, but we think the broad trend over the next year or so will be up in Brazil, and down in Mexico. Accordingly, interest rates are likely to head in …
23rd August 2018
The surge in Chilean GDP growth to 5.3% y/y in Q2 was driven mainly by a pick-up in domestic demand, and is likely to mark the peak in the cycle. Growth is likely to soften gradually from here. And our forecast for GDP growth over 2018 as a whole of 4.5% …
20th August 2018
Campaigning for Brazil’s elections in October started this week, and market-friendly candidate Geraldo Alckmin seems to have positioned himself well to mount a challenge to the leading populists. However, Mexico’s recent election, where expectations that …
17th August 2018
Colombian GDP growth increased from 2.2% y/y in Q1 to 2.8% y/y in Q2, and we think the recovery will strengthen by more than the consensus expects over the coming quarters. … Colombia GDP (Q2 …
15th August 2018
Turkey’s currency crisis, which could cause problems in its banking sector, has put the spotlight on EM banking vulnerabilities more generally. But while we had concerns about the health of Latin America’s banks a number of years ago, our latest Heat Map …
The Turkish lira may have surpassed the Argentine peso as the worst performing EM currency this year, but Argentine markets have still had a rough week. The lesson from other parts of Latin America is that, if Argentina’s escalating graft probe implicates …
10th August 2018
The stronger-than-expected Mexican industrial production figure for June was driven in part by a surge in utilities output, which is unlikely to be sustained. Even so, we still think that industrial production growth will pick up over the second half of …
The second consecutive monthly rise in Mexican inflation was driven largely by higher energy inflation, and is unlikely to spook Banxico. There’s a long way to go until the next policy meeting, but assuming the peso holds up well, the central bank is …
9th August 2018
Argentina’s central bank announced a tweak to its monetary policy framework last night which, in time, should help it to gain better control over monetary conditions. It also appears to have stopped monetising the government’s budget deficit, and has …
8th August 2018
Brazilian inflation rose to a higher-than-expected 4.5% y/y last month, but this reflects higher food and energy inflation which the central bank has made clear it will look through. Underlying price pressures still look weak. Elsewhere, the rise in …
Mexico’s central bank struck a hawkish tone in the statement accompanying this week’s monetary policy decision, and the markets are pricing in a good chance of another interest rate hike in the near term. But we still think that interest rates will be cut …
3rd August 2018
The 13.1% m/m jump in Brazilian industrial production in June confirmed that the sharp fall in output seen in May was a temporary result of the truck drivers’ strike in that month. But even so, it looks like the sector may have knocked about 0.5%-pts off …
2nd August 2018
The slightly more dovish language in the Brazilian central bank’s post-meeting statement adds weight to our view that policymakers are untroubled by the recent spike in inflation. And while a tightening cycle is set to begin over the next six months, rate …
The Peruvian sol has, despite the emergence of several headwinds, held up surprisingly well over the past few months. While we expect most currencies in the emerging world to weaken over the next 12-18 months, there are reasons to expect the sol to hold …
1st August 2018
The surprise contraction in Mexican GDP in Q2 was driven in part by a drop in agricultural production, which tends to be volatile, but growth in the services sector was also surprisingly weak. We think this should be a blip. Even so, following today’s …
31st July 2018
The sharp jump in headline inflation in Brazil over the past month has masked continued weakness in core inflation. And underlying price pressures should remain fairly subdued over the next 12-18 months. As a result, interest rates are likely to rise more …
30th July 2018
The relatively modest rise in the Mexican peso against the dollar in reaction to the positive news flow on Nafta talks suggests that investors are interpreting recent events with caution. Indeed, a number of sticking points – particularly labour content …
27th July 2018
The latest figures show that inflation rose across Latin America in June and early July, but the reaction from the region’s central banks is likely to differ. Policymakers in Mexico will focus more on the peso – which is up against the dollar this month. …
26th July 2018
The statement accompanying the decision by Chile’s central bank to hold its policy interest rate at 2.50% provided the clearest sign yet that policymakers are moving towards tightening. This supports our view that interest rate hikes will come sooner, and …
25th July 2018
The recovery in Latin America stalled in Q2, but we expect regional growth to accelerate over the coming quarters and our GDP forecasts for 2018-19 are generally above consensus. The main exception is Argentina, where we remain more bearish than most …
24th July 2018
Central banks in Colombia and Chile are set to leave interest rates unchanged at their meetings next week, but we think rates are likely to rise sooner, and a little further, than the markets are currently pricing in. Meanwhile, there remains a long way …
20th July 2018
There is growing evidence that, despite Banxico’s best efforts, inflation expectations in Mexico are becoming unanchored. One consequence is that the monetary policy debate over the coming months will focus on the need for more rate hikes. However, we …
19th July 2018
The 2019 budget guidelines approved by Brazil’s Congress this week diluted measures to contain spending and reinforce our view that appetite for economic reform in the legislature is waning. Even if an investor-friendly candidate wins October’s …
13th July 2018
The hit to the Brazilian economy from May’s truck drivers’ strike already seems to be reversing. But the recent tightening of financial conditions means the recovery over the second half of the year is likely to be weaker than we previously thought. We …
The disappointingly weak Mexican industrial production data for May suggest that the sector probably made a small negative contribution to overall GDP growth in Q2. … Mexico Industrial Production …
12th July 2018
The small rise in Mexican inflation, to 4.6% y/y last month, from 4.5% y/y in June, was due almost entirely to a rise in energy inflation, while core inflation fell to an 18-month low. The next interest rate decision will hinge largely on moves in the …
9th July 2018
Mexican financial markets have rallied this week following some business-friendly noises from left-wing president-elect Andrés Manuel López Obrador (Amlo), but we’d be wary of reading too much into his comments. There’s still some time before he takes …
6th July 2018
The jump in Brazilian inflation last month, to 4.4% y/y, from 2.9% y/y in May appears to be a result entirely of the truck drivers’ strike and electricity price hikes, and there are already signs that the impact may now have peaked. As a result, …
The 10.9% m/m fall in Brazilian industrial production in May suggests that the truck drivers’ strike at the end of that month may have knocked about 0.4-0.6%-pts off q/q GDP growth in the second quarter. But we expect the sector to recover lost ground …
4th July 2018
Argentina’s currency crisis has caused financial conditions there to tighten sharply in the past few months, and this is one reason why we expect the economy to fall into recession in the coming quarters. But there are signs that the broader EM sell-off …
3rd July 2018
The conciliatory tone of Andrés Manuel López Obrador’s (Amlo’s) speeches following his convincing presidential election victory has been relatively well-received by the markets. But it’s worth cautioning that we still have little clarity on Amlo’s …
2nd July 2018
A victory for left-wing populist Andres Manuel Lopez Obrador (Amlo) in Mexico’s presidential vote this weekend looks priced in. The market reaction is likely to take its cue from the performance of his Morena coalition in the legislative elections taking …
29th June 2018
Rising political risk has dominated the headlines in Latin America this month. A recent truck drivers’ strike in Brazil, a protest against the removal of diesel subsidies, has disrupted activity and pushed up inflation. While the strike has ended, the …
A victory for left-wing populist Andrés Manuel López Obrador (Amlo) in Mexico’s presidential election on Sunday appears to be priced in to markets. But a strong showing for his Morena coalition in legislative elections on the same day could still push the …
28th June 2018
