Entries for 'Latin America'

Initial policy measures suggest a less market-friendly stance than expected by investors. Top concerns are potential meddling in monetary policy, high spending, and subsidized lending. Despite increased state intervention, we believe moderation will prevail, helping avoid more adverse scenarios.

Peru’s political and social crisis has continued, undermining governability. Social tensions sprout from idiosyncratic institutional fragilities. While macroeconomic policies have remained remarkably unscathed, we have downgraded our 2023-24 growth forecasts following recent developments.

We have increased our 2022 LatAm growth forecast to 3.1% amid a robust H1, despite recent drag from softer commodity prices and forceful monetary tightening. While policy adjustment and global headwinds will weaken activity in 2023, the external environment could encourage LatAm asset allocation.

Investors are pricing in more checks and balances post-election. The new political landscape could make the macroeconomic policy framework more resilient. Despite rising transition risk, we do not expect a full-blown crisis. We remain optimistic as incentives for moderate policies have increased.

The upcoming presidential election has become more contested. Yet despite rising transition risk, we do not expect full-blown institutional crisis, and a relatively smooth transfer of power could lift investor confidence. Regardless of who wins, the overall economic framework should stay unchanged.

Costa Rica’s current account deficit remains manageable, and the external funding outlook is favorable. The real exchange rate has depreciated, favoring external adjustment. However, inflation pressure has intensified, and global bond issuance remains a challenge amid political resistance.

Exchange rate flexibility has become a key tool to absorb external shocks in most large LatAm economies despite high inflation. Yet “fear of floating” remains pronounced in highly dollarized economies, increasing vulnerability in Argentina, Ecuador, and much of Central America and the Caribbean.

Higher inflation in Chile reflects multiple factors. Demand pressure has eased but remains high. Currency depreciation has offset falling global commodity prices and extended the tightening cycle. Inflation in 2022 is likely to remain above 10% y/y even with a more favorable sequential path in H2.

The Colombian peso has seen a plunge this year amid global and local factors. External and fiscal imbalances remain wide despite a windfall from commodity exports. Uncertain policy plans of the incoming administration have exacerbated FX pressure.

Growth is stalling as policy stimulus is reversed and global headwinds mount. Despite high copper prices, the current account deficit remains wide. Business and popular sentiment has sagged, and the administration faces steep challenges amid legislative deadlock and a politically tough tax reform.

Spiking commodity prices will dampen momentum in Frontier LatAm. We have lowered our 2022 growth projection amid the war in Ukraine. Recovery in tourism and still-high remittances would partly mitigate the drag. Higher oil prices and slowing external demand could worsen fiscal and external pressure.

Chile and Colombia ran very wide twin deficits last year, … and their economies overheated due to policy stimulus. Very different fiscal policy wi...

Surging commodity prices due to war should support activity this year. However, net energy importers could suffer, and forceful monetary policy tightening to rein in inflation will likely weigh on growth in most economies. The medium-term outlook remains bleak across major LatAm countries.

Frontier LatAm countries stand to lose from the spillovers of the war in Ukraine. Fuel is a key driver of import demand in most countries; we estimate a $10 rise in oil prices yields negative trade effects in the range of 0.4% to 1.0% of GDP. El Salvador, Honduras, and Jamaica look most exposed.

Commodity export dependence across LatAm is high for EM. The commodity price surge due to war in Ukraine should bolster external accounts in several countries, as reliance on Europe as an export market has fallen. The hard currency windfall should help offset adverse effects on inflation and growth.

Rising inflation has forced major LatAm central banks to hike forcefully. A bottom-up analysis of inflation shows that the inflation surge has been broad-based across CPI baskets, suggesting demand-pull factors. Sustained inflation momentum in Mexico is tough to reconcile with the weak recovery.

Foreign reserves continued to recover in 2021, supported by factors including SDR allocation, high commodity prices, and exchange rate adjustment. Brazil, Mexico, Chile, and Peru beefed up external buffers. Yet challenging current account and capital flows dynamics could pressure reserves in 2022.

Chile's current account deficit is wide despite high copper prices.

The economy is stabilizing, with fiscal adjustment in line with IMF program targets. Rapid vaccination rollout and subsequent reopening have contributed to ongoing recovery, and EMBIG spreads have dropped sharply. Tough political negotiations are key to move forward with the ambitious reform agenda.