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Latin America


Chile GDP (Q2)

Chile’s economy merely stagnated in Q2 and the chances are high that it will fall into recession over the second half of the year. Meanwhile, current account risks are continuing to build – with the deficit widening to more than 8% of GDP in Q2 – which will keep the peso on the backfoot.

18 August 2022

Chile’s constitution cost, Massa & Argentina’s mess

A recent report suggesting that provisions in Chile’s draft new constitution could increase annual government spending by 9-14% of GDP underscores that the country is shifting towards the state playing a much bigger role in the economy. Elsewhere, Argentina’s new economic superminister Sergio Massa has talked a good game on sticking to the IMF deal, but meeting the programme’s goals will be a big challenge.

5 August 2022

Argentina’s new superministry, Chile minutes

The appointment of Sergio Massa as head of Argentina’s newly-created economic “superministry” provides some hope that the government will stick to its latest IMF deal but, even so, meeting the Fund’s targets will be a tall order, especially ahead of next year’s presidential election. Meanwhile, the hawkish minutes from Chile’s central bank meeting in July support our view that monetary policy will be kept tighter for longer than most expect. Finally, although the extra “anti-inflation” measures announced in Mexico this week may help to put inflation on a downward path, price pressures will remain acute over the rest of the year. This will keep Banxico in tightening mode.
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29 July 2022
More Publications

Colombia’s trade deficit, Chilean peso’s rollercoaster

The somewhat surprising widening of Colombia’s trade deficit in May suggests that the current account deficit isn’t narrowing as we’d expected. This will keep the peso on the backfoot and the central bank in a hawkish mood, including with a 150bp hike at its meeting week. Elsewhere, the Chilean central bank’s FX sales programme has put a floor under the peso, but lower copper prices, large external imbalances and political uncertainty are likely to exert further downward pressure on the currency over the rest of the year.

Brazil’s election giveaways, panic stations in Chile

The rapid rise in inflation and sharp falls in the peso have clearly spooked Chile’s central bank and we now expect the policy rate to reach 11.0%, from 9.75% now, which puts us on the hawkish side of the debate. Elsewhere, the passage of a bill expanding social spending in Brazil ahead of the election deals another blow to the country’s fiscal rules, and it’s hard to see things improving in the next presidential term. Finally, tweaks to Argentina’s monetary policy setup point to growing fiscal dominance.

Inflation near a peak, but little comfort for central banks

Inflation rose to multi-decade highs in much of Latin America last month and, while it should peak in Q3, headline rates will remain uncomfortably high for some time. Central banks in the region started tightening policy earlier than elsewhere and, similarly, cycles will come to an end sooner. But even so, interest rates are likely to remain above their neutral level well into next year, weighing on recoveries.

Emerging Markets Capital Flows Monitor

Capital outflows from EMs picked up over the past month and are likely to persist over the rest of the year. That’s a particular threat to those EMs whose current account deficits have widened or are widening sharply, including Turkey, Chile and parts of Central Europe.

Brazil & Chile Consumer Prices (Jun.)

The increases in inflation in Brazil (to 11.9% y/y) and Chile (to 12.5% y/y) last month set the ground for 50bp hikes in policy rates at their respective central banks’ next meetings (in Chile’s case, next Wednesday). In both cases, though, there are reasons to think that tightening cycles are nearing an end.

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