Entries for 'Latin America'

A hard-won agreement with the IMF puts off tough decisions until after the election. We estimate the external financing gap at $16bn in 2023. Thus, the primary election is critical. We expect the opposition to do better than expected, but the situation is highly uncertain and market sensitive.

Brazil’s trade surplus has been building steadily in recent years. The decomposition of trade flows shows agricultural export volume as the catalyst. We estimate the trend trade surplus at 2.2% of GDP, up from 1% a decade ago, given productivity and arable land potential driving agricultural growth.

Narrowing trade imbalances

Crisis risk is on the rise ahead of the October presidential elections. We put the 2023 external financing gap at $15bn amid negative net foreign reserves. Advancing IMF money could help but will require policy corrections. The next administration will be pressed to adopt a stabilization plan.

The government submitted to Congress a long-awaited pension reform bill. We survey the main independent and official reviews on the proposal, focusing on the fiscal impact. While the reform introduces improvements in coverage, equity and sufficiency, these gains come at a steep fiscal cost.

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.