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We doubt that last night’s interest rate cut in Peru signals the start of an aggressive easing cycle. Inflation looks set to remain above target while a large current account deficit suggests that domestic demand is already too strong. Accordingly, we …
11th July 2014
The latest FX intervention programme announced by Colombian policymakers is unlikely to reverse the recent appreciation of the peso against the US$. Accordingly, we expect a strong currency to distort economic growth and prevent aggressive interest rate …
10th July 2014
The latest opinion polls suggest that October’s election remains President Rousseff’s to lose. But although support for her has edged up in the latest polls, following a sharp fall earlier this year, success will depend on whether she is able to attract …
9th July 2014
The fact that the Peruvian government has responded to weaker economic growth with reforms rather than populist spending is positive. But we do not believe it will deliver the large boost to growth that policymakers expect. Accordingly, while the …
8th July 2014
The Venezuelan economy remains in the grip of a dollar drought, and it seems that the government maysoon abandon its disastrous experiment with a multi-tiered exchange rate. But even if a new unifiedbolivar exchange rate is introduced and devalued to over …
3rd July 2014
June’s business surveys suggest that manufacturing in Brazil is doing little more than stagnating. By contrast, the outlook for Mexican manufacturers is much brighter – the latest survey data suggest that growth could accelerate to 5% y/y or more over the …
1st July 2014
Following a failure to make an interest payment on restructured bonds yesterday, the Argentine government appears to be heading towards another default unless it can reach agreement with holdouts within the next 30 days. A default may have little …
So far at least, financial markets in Argentina have largely shrugged off the fact that, barring a last minute deal with holdout creditors, the government now seems destined to enter a technical default on some of its debt obligations. As it happens, even …
30th June 2014
The 2014 Football World Cup is proving to be a welcome distraction from yet more downbeat news on Brazil’s economy over the past month. Our GDP Tracker suggests that, after dropping to just 1.9% y/y in Q1, growth has slowed further in Q2. Meanwhile, the …
27th June 2014
First quarter GDP data released yesterday showed that the Argentine economy was already in recession even before the latest wrangle with the holdouts from 2005’s debt restructuring. As such, we continue to expect GDP to contract by at least 1% this year. …
24th June 2014
A series of statements from Buenos Aires over the weekend provide hope that Argentina’s government might be able to find common ground with “holdout” creditors. Reaching a mutually agreeable solution will still be difficult, but the worst-case scenario …
23rd June 2014
Policymakers in Colombia hiked interest rates by another 25bp to 4% on Friday night and we expect the tightening cycle to remain gradual. Inflation is unlikely to be a major headache, while we expect the pace of economic growth to slow. As a result, we …
Strong government spending ahead of Colombia’s presidential elections appears to have supported rapid growth of 6.4% y/y in Q1, but we doubt that the current pace of expansion will be sustained. As such, we expect GDP growth to cool from 4.5% this year to …
19th June 2014
Latin America’s economy looks set to remain stuck in the slow lane over the next couple of years. The drivers of strong growth over the past decade – including rapid credit growth and strong global demand for the region’s commodities – are weakening. At …
The re-election of Juan Manuel Santos as the president of Colombia will ensure the continuation of peace talks with the FARC, but is unlikely to signal a shift away from the economy’s reliance on commodity-driven growth. With the global commodities boom …
16th June 2014
Policymakers in both Chile and Peru left interest rates unchanged at 4% last night and we expect above target inflation to restrict the room for rate cuts in the second half of the year. On balance, we think the easing cycle in Chile is over, while we …
13th June 2014
After a torrid 2013, financial markets across Latin America have enjoyed a decent run over the first half of 2014, with most equity markets up by around 5% and bond yields edging down too. However, the relative stability in financial markets contrasts …
11th June 2014
An improving outlook for inflation in Mexico suggests that Friday’s surprise interest rate cut is unlikely to be reversed in a hurry. We expect interest rates to remain at their new historic low of 3.0% for at least a year, after which some gradual hikes …
9th June 2014
The larger-than-expected rise in Brazil inflation in May leaves it on course to breach the upper bound of its target range over the coming months. This would be a major blow to the central bank. Either it would have to resume hiking interest rates ahead …
6th June 2014
The latest data do not contain much evidence of a pre-election giveaway in Brazil but President Rousseff’s slide in the opinion polls since the start of the year, coupled with a stagnant economy and a drop in consumer spending in Q1, has raised the …
3rd June 2014
Today’s manufacturing PMI data for May add to the evidence that the Brazilian economy continued to struggle in the second quarter. Meanwhile, although the US ISM manufacturing index unexpectedly fell last month, it still points to strong Mexican …
2nd June 2014
Colombian policymakers have indicated that they expect interest rates to continue rising gradually over the coming months. As such, we are revising up our forecast. But with growth set to slow and inflation unlikely to rise substantially above target, we …
First quarter GDP data released over the past month suggest that the region’s economy slowed further at the start of this year, with growth dipping to just 2.0% y/y in Q1, down from 2.2% y/y in Q4. That was the second worst performance since the region …
The slowdown in Brazilian GDP growth, from 2.2% y/y in Q4 to 1.9% y/y in Q1, is further evidence that Latin America’s largest economy is still struggling for momentum and could increase pressure on the government to loosen the purse strings ahead of …
30th May 2014
Brazil’s central bank (BCB) called a halt to its tightening cycle last night and now seems unlikely to make any changes in interest rates until after October’s presidential elections. However, it’s possible that policymakers might resume tightening once …
29th May 2014
A victory for either Oscar Zuluaga or Juan Manuel Santos in the second round of Colombia’s presidential election next month is unlikely to cause a stir in the markets. But with neither candidate likely to take steps to wean the economy off its reliance on …
27th May 2014
Mexican GDP growth fell short of expectations in the first quarter, but the economy looks set to fare much better over the coming years as the government presses ahead with major investments and the neighbouring US economy strengthens. So while we are …
23rd May 2014
Currencies, equities and bonds have all fared well so far this month after a turbulent past year. While we expect bouts of financial market volatility as US monetary policy becomes less accommodative, particularly in the FX market, we suspect that most of …
22nd May 2014
The recent depreciation of the Argentine peso may be small, but it could be significant in marking thestart of another prolonged decline. With rampant inflation eroding the economy’s externalcompetitiveness, and fluctuations in risk appetite likely to …
21st May 2014
Chile’s economy performed better than expected in the first quarter of this year, but the bigger picture is that growth has slowed markedly from the 5.5-6.0% rates of recent years. As the commodities boom comes to an end, we expect GDP growth of just 2.8% …
19th May 2014
Tempting though it is to blame the recent weakness of Mexico’s economy on problems north of the border, the truth is that many of the factors that have weighed on growth over the past six months or so have been home-grown. However, there are signs that …
16th May 2014
The Chilean central bank (BCC) left interest rates unchanged last night and, despite weak economic growth, our long-held view that rates will end the year at 4% looks increasingly likely. Elevated inflation and a large current account deficit will limit …
The expected re-election of Juan Manuel Santos as Colombia’s president is good news for peace talks with the FARC, but will probably mean that major economic reforms to boost the competitiveness of industry remain on the back-burner. With the commodities …
14th May 2014
After contracting in the fourth quarter of last year, a poor start to this year means that the Argentine economy is probably already in a technical recession. Revisions to the government’s methodology mean that reported economic growth will probably be …
12th May 2014
Rising inflation looks set to force policymakers in most parts of Latin America to keep monetary policy relatively tight despite evidence that the region is entering a new phase of weaker economic growth. The key exception is Mexico where an increasingly …
9th May 2014
Interest rates in Peru were left unchanged at 4% last night and we do not foresee aggressive monetary easing in the next 18 months. While economic growth looks set to slow, we think that a large current account deficit and above-target inflation limit the …
The latest opinion polls suggest that President Rousseff remains the clear favourite to win a second term in office in October’s elections. But there is evidence that rising inflation is eating into her support – and our inflation forecast suggests that …
8th May 2014
The El Niño weather event that is expected later this year may cause some localised disruptions, but it is unlikely to have a marked impact on overall economic activity in the region. … El Niño to have limited impact on real …
7th May 2014
The 2014 Football World Cup, which gets underway next month in Brazil, is unlikely to provide much of a boost to the country’s flagging economy in the short term – and it certainly won’t do anything to address the structural problems that are weighing on …
6th May 2014
April’s manufacturing PMI suggests that Brazilian manufacturers made a disappointing start to the second quarter. By contrast, the outlook for Mexican manufacturers continues to improve as the US recovery strengthens. … Slow start to Q2 for Brazilian …
2nd May 2014
The Mexican government’s plan to oversee investment projects worth a cumulative 46% of GDP, including an overhaul of the energy industry, should go a long way to ensuring that the economy is Latin America’s relative outperformer over the coming years. As …
1st May 2014
Chile’s activity data for March point to GDP growth of just 2.7% y/y in the first quarter, suggesting that the recent slowdown in the economy is here to stay. As such, we are increasingly comfortable with our below-consensus forecast for GDP to expand by …
30th April 2014
Having been one of worst performing EM currencies in 2013, the Brazilian real has been one of the best performers so far in 2014, prompting speculation that it will strengthen further from here. We’re sceptical. While much of the necessary adjustment in …
29th April 2014
We do not think that the Colombian central bank’s (BANREP) surprise decision to increase interest rates by 25bp to 3.5% on Friday marks the beginning of an aggressive tightening cycle. With economic growth likely to be slower than policymakers anticipate …
28th April 2014
Inflation has started to accelerate once again in Brazil, casting doubt over signals from the central bank that the hike in interest rates earlier this month could be the last in the current tightening cycle. Inflation rose to 6.2% y/y in March – taking …
25th April 2014
The past month has seen Latin American financial markets perform fairly well, building on the momentum of March’s rebound. But despite the recent gains, we expect some renewed downside this year amid slowing economic growth and lower commodity prices. … …
23rd April 2014
The financial media and markets alike have hailed the apparent shift towards pragmatism in both Argentina and Venezuela as a new dawn. But while recent developments are promising – particularly in Argentina – much more still needs to be done to put the …
Mexican investment has been weak for the past two years, but we do not think that the economy is heading for a Brazilian-style capacity crunch. Business investment has been relatively buoyant, and with FDI set to flood into the energy sector, we expect …
22nd April 2014
A victory for Juan Manuel Santos in next month’s Colombian presidential election may be welcomed bythe markets, but it is unlikely to herald the beginning of structural reforms. As such, with thecommodities boom coming to an end, Colombia faces a …
15th April 2014
We have been warning for a very long time that the recent period of strong growth in Latin America has been built on shaky foundations. With external vulnerabilities mounting, several countries in the region are now exposed to tighter global monetary …
14th April 2014
