We expect the positive trend to consolidate with the easing of lockdowns in August and September
The manufacturing sector is driving the economic recovery
The recovery was driven mainly by the manufacturing sector
A split decision and capital flight concerns amid negative real interest rates suggest that the easing cycle likely ended.
Imports continued to contract as internal demand remained weak
Core goods inflation continues to be at a high level
Further monetary easing unlikely at least until the end of this year.
Still, retail sales are 12% below pre-outbreak levels
We forecast a GDP contraction of 12.7% this year
Our forecast for the primary fiscal deficit this year stands at 6.9% of GDP (from 0.4% in 2019),
Weak domestic demand in 2Q20 reflect the negative shock from COVID-19
Recovering, but still low terms-of-trade and dampened global activity mean Colombia’s external account imbalances would persist ahead
Despite the less pessimistic outlook, ample stimulus is set to remain in place
Headline inflation increased in August, in line with expectations and led by core items.
Natural and non-natural resources sectors are supporting the recovery.
We revised our forecast for the July monthly coincident indicator (ISE) to a decline of 9.2%, only a modest improvement from the 11.1% drop in June.
The manufacturing sector is the main driver of the recovery
The budget bill foresees a reduction of the consolidated fiscal deficit to 3.8% of GDP in 2021.
The budget bill aims to reduce the fiscal deficit to 4% of GDP in 2021, from an estimated 7% for this year.
Core goods inflation accelerated further
Optimistic oil production targets and GDP growth estimates risks missing fiscal targets
A wide output gap and relatively stable currency ought to limit price increases going forward
The economic reopening and oil price recovery will counter dampened domestic demand, preventing inflation falling significantly further
Signs that import dynamics are improving would contain further surplus widening
The central bank enters a wait-and-see mode, assessing the evolution of the economy while leaving the door open for further easing.
Argentina will seek an agreement with the IMF following a successful debt restructuring with private creditors.
Fiscal accounts deteriorate amid COVID-19 shock
The macroeconomic scenario evolvement continues to be determined by the development of Covid-19 and containment measures
Weak internal demand, recovering terms-of-trade, and a swifter global rebound will aid some further CAD narrowing
Headline inflation stood below the central bank target for twelfth consecutive month
Government bond purchases could be used to address liquidity issues, but not boost aggregate demand.
Improvements on the health front, along significant monetary and fiscal impulses, are contributing to the recovery.
As the mandatory quarantine was extended until the end of August, the labor market recovery is set to be gradual
The board is likely to evaluate how the economy progresses, while keeping the door ajar for further easing
With the economy reopening, cash transfers and pension withdrawals materializing, the activity recovery advancing.
Historic job losses, record low participation and reduced work hours are consistent with only a gradual activity recovery scenario
While two members advocated for further easing, other two seem more cautious
Manufacturing exports recovered at a faster pace than non-oil imports
Inflation forecasts increased for 2020
Still monthly GDP is far below pre-outbreak levels
Trade surplus widened in July, on weak imports.
Net portfolio flows and FDI deteriorated amid uncertainty surrounding the outbreak
Core goods CPI still growing above Banxico’s inflation target of 3%
Retail sales are still far below pre-covid levels in February
Higher public debt expected for 2020 amid weak GDP and large fiscal stimulus
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The lockdown hurt all sectors in 2Q20.
Activity is likely to gradually recovery ahead as the economy reopens and the fiscal stimulus reaches firms and consumers
Lower oil prices, weaker domestic demand and a mining export increase favored the trade balance in 2Q20
However, the economy is still far below pre-outbreak levels in February
Dynamics within the quarter are in line with a gradual recovery
With oil prices recovering, further narrowing of the trade deficit is likely ahead.
Downbeat private sentiment, still-low terms-of-trade, significant job losses and elevated uncertainty point to a gradual recovery process ahead
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We still expect the policy rate to reach 4.00% before the end of 2020
The recovery was driven mainly by the manufacturing sector
The monetary policy committee has started a process to change the monetary policy instrument.
We adjusted our GDP growth forecast down to -3.5%, from -2.6% in our previous scenario
Imports remain weak as domestic demand weakens and uncertainty restrict investments
Falling service prices reflective of weak domestic demand
Core goods CPI continues to grow above Banxico’s target of 3%
The door to further easing is not closed, but upcoming rate decisions are set to be more data-dependent
Contagion reaccelerated in Peru as the economy reopens
The next stop is a renegotiation with the IMF
The economic recovery will likely be curbed by policy uncertainty
May’s figures show a slower deterioration compared to last month
The unwinding of government measures and reopening of the economy would contain downside pressures.
An expansionary monetary policy stance is justified by the possibility of a 10% GDP contraction
As the country partially opens and the evolution of the coronavirus consolidates a favorable trend, an activity recovery is expected ahead
With some easing of lockdown measures unfolding, some gradual economic recovery is anticipated
We expect the policy rate to remain at 0.5% and a boost to the QE measures in response to any significant deterioration of conditions.
As we approach the end of the cycle, future moves would be dependent on how the recovery and inflation unfold
As economic weakness endures and lockdown measures gradually lift, the labor market is likely to remain weak
The MoF reduced its 2020 GDP forecast to -7.4%
Industrial sector was affected the most by COVID-19
The extension of the lockdown to the end of August hints at only a slow labor market recovery ahead
Hefty contraction of imports in 2Q20.
A slower recovery in imports relative to exports supported the improvement in the trade balance
Monthly GDP in May surprised to the downside
Core goods and gasoline prices exerted upward pressure to headline inflation
Expenditure increased in June, driven by social and energy subsidies.
The sequential rebound in May does not preclude a generalized sharp decline in activity in the quarter.
Distancing measures still affected private consumption during May
With low terms-of-trade and a fragile global demand, Colombia’s external imbalances are set to persist
A large fiscal stimulus and an expansive monetary policy will support the recovery
The board remains ready to intensify the monetary impulse and support financial stability.
We expect inflation to accelerate in the coming months.
Despite some upbeat signs, significant job losses and high uncertainty mean the activity outlook remains unfavorable
IP weakened further on a monthly basis, albeit less than last month
Headline inflation was pressured by core tradables and gasoline prices
Differences within board members over the easing pace may be emerging
A strained domestic demand and the stabilization of the CLP would lead to contained inflationary pressures going forward.
With lockdown measures persisting into July and job shedding continuing, import demand will likely stay suppressed in the near-term
The transmission of COVID-19 remains under control, allowing the country to progress toward the new normal.
The continued decline in activity led the government to increase the fiscal package.
A downbeat activity outlook, swiftly loosening labor market and diminishing inflation expectations point to subdued inflationary pressures ahead
Weak internal demand in April reflects the first full month of lockdown
Larger fiscal and monetary support are necessary to contain the activity collapse
Expansionary monetary policy for long
We now project a GDP contraction of 10.9%, from -9.1% before.
A stronger-than-expected activity decline called for a boost to stimulus measures, but uncertainty complicated the specificities
Mining activity still lifted growth in the month.
Lower gasoline and agro prices exerted downward pressure on inflation
We forecast a current account surplus of 0.6% of GDP this year.
The unemployment rate will likely exceed 10% on average this year, peaking in coming months.
The sectorial activity for May points to the GDP proxy (IMACEC) contracting 15.5% (14.1% fall in April).
We see the policy rate reaching 2%, but risks are tilted towards lower rates.
The unemployment rate is to average 16% this year (10.5% last year), but risks tilt to the upside if the economic recovery in 2H20 underwhelms.
We now project a GDP contraction of 10.9% for this year, from -9.1% before
Exports and imports remained weak in May amid the Outbreak
Broad-based deterioration in economic activity amid the outbreak
Imports continued to slide.
Private consumption determinants also weakened
Another 50-bp cut in the next meeting is likely
Upside surprise came from core non-food items
There is the risk of a wider primary deficit than the 4.8% that we currently expect for this year
We expect activity to show a bigger contraction in 2Q20 due to the impact of social distancing measures.
PM-Itaú posts the sharpest decline in the series
Private demand deteriorated, showing the first negative effects from the outbreak
Weak imports is consistent with a significant consumption and investment contraction ahead
Rates seen staying at 0.5% until mid-2022
Preventing widespread bankruptcies and job losses justifies the recent boosting of fiscal and monetary support.
While the latest developments allow for short-term fiscal relief, a tough fiscal consolidation program would be needed ahead.
Non-natural resource sectors were affected the most
The enhanced fiscal response would help avoid a more long-lasting impact from the coronavirus pandemic on the economy
With lockdown measures persisting through May, and only partially eased in June, the activity slump will be sharp in 2Q20
Headline inflation was unchanged in May, helped by price freezes and caps
Industrial production deterioration reflects a full month of lockdown amid the outbreak
We project a GDP drop of 3.6% for this year.
We forecast a 2.6% drop in GDP for this year.
The downside surprise in inflation was driven by a contraction in core goods ex-food prices
As inflation drops swiftly and the activity slump consolidates, the central bank will likely deem it is necessary to persist with monetary easing
As job losses rapidly rise, import dynamics are set to remain weak ahead
Argentina defaulted again.
A swiftly loosening labor market and low oil prices lowered inflationary pressures
More stimulus likely required to aid recovery, but rating risk hovers
Falling internal demand and a weaker currency will likely lead to a gradual CAD narrowing this year
With the health situation deteriorating in May, mobility restrictions were extended, hence activity momentum is set to worsen before it gets better
We see room for lower rates, but the board would prefer not to move more aggressively than already done.
Reduced global demand, mobility restrictions and lingering domestic uncertainties point to a 3.7% GDP contraction this year
Labor market loosening would persist after April as social distancing measures continued and growth prospects faltered.
Additional labor market loosening ahead is in line with a significant consumption decline this year.
La caída de la demanda global, las restricciones de movilidad y la persistente incertidumbre domestica nos hacen esperar una contracción del PIB para 3,7%.
Most members pointed out the importance of acting with prudence
We expect Banxico to continue a cautious easing cycle
We forecast a surplus of USD 17.5 billion this year, as measures to contain the spread of COVID-19 will take further a toll on activity and imports
Industrial and services sector started showing the negative effects from the outbreak
Net portfolio flows deteriorated amid uncertainty surrounding the outbreak.
Weak exports and imports reflected the full COVID-19 effect in the economy.
Already weak retail sales started reflecting the negative effects from COVID-19
Headline inflation rebounded driven by core food and gasoline prices
Fiscal accounts to deteriorate further due to a large fiscal stimulus and weak economic outlook
A larger external drag and recovery doubts consolidate the view that significant monetary stimulus is required to combat the shock
Going forward, the expectation of a rising trade surplus, given a domestic demand implosion, would support a swift CAD narrowing
Reduced global demand, mobility restrictions and lingering domestic uncertainties would lead to a 3.7% contraction this year
The central bank will continue enhancing liquidity measures to ease the functioning of the financial system and to protect business operations and employment.
The deterioration in economic activity was generalized.
Balance of risk for inflation remains uncertain
Despite weak internal demand and a weaker currency, we expect a gradual narrowing of the current account deficit given the developments in the oil market.
How economic activity unfolds will depend on the duration of the lockdown, its effect on the labor market and corporate balance sheets
Still, we note that monetary financing of a growing fiscal deficit tilts risk to the upside.
We estimate a 2.6% drop in GDP this year.
We estimate a 2.6% drop in GDP this year.
Manufacturing output is the most affected sector by the outbreak
The economy is on the receiving end of two shocks, one from the coronavirus and the other from oil market developments.
Strict measures to contain the outbreak
We now forecast a GDP contraction of 8.3% for 2020, from -6.4% in our previous scenario.
Low oil prices and a widening output gap mean inflation would remain contained going forward.
Uncertainties over domestic policy direction will also keep denting investment outlook.
Las medidas de control del coronavirus, el sentimiento privado bajo y el deterioro del mercado laboral, llevarán a un débil dinamismo de las importaciones.
As social distancing measures stay in place, private sentiment drops and the labor market loosens, import dynamics will remain weak going forward.
Fall in gasoline prices exerted downward pressure on inflation
Given the economic outlook, we expect rates to remain at their technical minimum throughout the year
Core inflation is slowing fast at the margin
Board members seem to agree on the need for lower rates
Economic data is only starting to reflect the impact of the shock, with activity set to get worse before it gets better.
Weaker job gains and steady labor force growth led the loosening of the labor market
Economic growth deteriorated in 1Q20 from an already weak growth pace in 2019
Labor market loosening hints at considerable consumption fall in 2Q20.
The monthly GDP proxy is set to contract 1% YoY in March.
Given the drastic outlook deterioration, we see room for at least one more 50-bp rate cut to 2.75%
Coincident indicators point to a sharp contraction in March.
Manufacturing exports deteriorated in March amid disruption in global supply chains
Weak momentum in monthly GDP before COVID-19
Inflation was dragged mainly by a fall in gasoline prices
Retail sales growth pace was weak before COVID-19
We expect a wider trade surplus this year.
We expect a dramatic deterioration of the fiscal accounts in 2Q20.
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The evolvement of external imbalances will depend on the opposing forces of low oil prices and slumped domestic demand
While rates would remain at their technical minimum throughout the year, we cannot rule out the use of additional forms of monetary tools.
Despite strong activity at the start of the year, dual shocks would have a significant impact on the economy and lead to a growth contraction.
The rise in headline inflation was driven by food and education services.
Economic activity to deteriorate sharply amid coronavirus outbreak
Coronavirus outbreak is set to deteriorate activity sharply
We see inflation falling closer to the 3% target in 2Q20.
Lower inflation driven by a fall in gasoline prices
With the Chilean economy all but closing down in late March and April, import dynamics will deteriorate further in coming months
Inflation remains near the upper bound of the central bank’s tolerance range (2%-4%), but core measures are closer to the 3% target.
Despite the cautious tone, we expect Banxico to reduce monetary policy further in the upcoming months.