Despite the cautious tone, we expect Banxico to reduce monetary policy further in the upcoming months.
The fiscal update reflects worse fiscal revenues and some support to the economy through extra spending
Despite the activity improvement at the beginning of 2019, we expect a 1.6% contraction this year.
Widening output gap to dominate inflation trajectory
Headline inflation was dragged by a sharp fall in core inflation
We expect the GDP proxy for February to grow 3.3%.
Any additional monetary stimulus would likely come through quantitative easing measures
As economic conditions deteriorate, significant labor market loosening is expected ahead.
The shock expected to hit activity this year would lead to some labor market loosening
We expect a 50bp rate cut to 0.5% at tomorrow’s monetary policy meeting.
We forecast a GDP contraction of 4.4% for 2020.
Our call is for stable rates ahead, but risks are tilted to more easing.
Manufacturing exports deteriorated on a monthly basis
Economic activity to deteriorate sharply in 1H2020
Lower commodity prices are likely to affect trade surplus this year
At the margin, we estimate that the s.a. current account surplus reached 2.3% of GDP in 4Q19.
Coronavirus outbreak to hit private consumption in 1H2020
Our GDP growth forecast for 2020 was recently revised down to -4.4% from -2.0%
Lower energy prices pressured down inflation
We expect a policy rate of 5.50% by the end of 2020.
Public gross fixed investment deteriorated further.
Amid the recent terms-of-trade collapse and the global scenario deterioration, Colombia’s external imbalances will likely endure ahead.
We expect a weaker domestic demand and lower energy prices to lead to a narrowing of external imbalance this year.
The global expansion of COVID-19 and the resulting measures undertaken only enhance headwinds ahead.
The global liquidity wave paved the way for rate cuts in Chile.
Coronavirus outbreak pose downside risks to industrial production outlook
Strong external headwinds will likely lead to a growth slowdown ahead
Tariff freeze decelerated headline inflation.
Price stability would give the BCP room to maintain the current monetary policy rate.
The government is focused on public accounts.
Annual inflation rebound will fade away in March as the unfavorable base effect disappears
The quick correction of Chile’s external imbalances is a favorable development that could alleviate part of the pressure on the CLP.
Inflation pass-through pressures will keep inflation elevated for the coming months until weakened internal demand
Inflation pass-through pressures will keep inflation elevated for the coming months until weakened internal demand
Robust growth, along with the weakening of the Colombian peso, pose a risk to our disinflation expectation
The figures show internal demand in Mexico was weak in 2019
The favorable FDI inflows to Colombia would continue to allay possible central bank concerns
Annual headline inflation stood below the central bank target for the sixth month in a row
Despite the positive dynamics at the beginning of the year, a continued momentum recovery is unlikely
A pesar de la dinámica positive al comienzo del año, parece poco probable que se sostenga el impulso
A further labor market loosening is expected amid low growth.
Labor market developments in urban zones is in line with a prolonged period of activity recovery and elevated business confidence levels
Manufacturing exports improved on a monthly basis, but momentum is still weak
Sectorial indicators point at a January GDP proxy (IMACEC) expansion of 1.0%.
Total revenues decreased by 8.2% yoy in real terms in January, dragged down by a weak tax collection
Most members are data dependent for future monetary policy decisions
The balance of risks for inflation was kept as uncertain
Final domestic demand was dragged mainly by weak gross fixed public investment
Weak imports sustained a wide trade surplus in January.
Economic activity marked two years of recession.
We expect the CAD was close to 4.5% of GDP last year (3.9% in 2018).
Growth in 4Q19 was broadly in line with 3Q19 as slowing consumption and investment were offset by a smaller net export drag.
Subtle signal that further loosening could once again become part of the discussion
Deputy Governor Esquivel is no longer backing a 50-bp move.
Despite protests losing momentum by December, activity at the margin continued to weaken, hampering the carry-over for 2020
Below the inflation target
The incoming government proposes a fiscal rule to ensure the sustainability of public finances.
Reflecting restrained domestic demand pressures is the near historical low non-tradable inflation
Still double-digit falls in consumer and capital goods imports underscore the weak domestic demand
Moderating service inflation points to well-behaved core price dynamics
Moderating service inflation points to well-behaved core price dynamics
Despite a more gradual disinflation path now expected, inflation is viewed to be under control
Expansionary monetary policy and fiscal stimulus would aid an activity recovery from 4Q19
We expect the full impact of the recent events on the labor market to be reflected in coming months
Inflation balance of risks remains symmetrical.
If the labor market shows some improvement ahead, the central bank would not need to increase the monetary stimulus.
Despite positive signs that activity is improving, downbeat private sentiment would lead to below potential growth this year
The economy likely contracted 0.1% in 2019
Our expectation of rates cuts depends on the impact of the Chilean peso on inflationary pressures
Weak non-oil imports supported the improvement in the trade balance
The real wage bill continues to expand at a solid pace
Economic activity momentum remained weak
We expect the trade surplus to remain wide in 2020
Activity contracted by 2.3% yoy during the first 11 months of the year
We forecast a primary deficit of 1% of GDP this year
Inflation was pressured by an unfavorable base effect and an update in excise tax
GDP growth resumed in 3Q19, led by consumption
The fiscal deficit increased in 2019, becoming the foremost challenge for the new government
We expect the current account deficit to remain wide at around 4.5% of GDP for both 2019 and 2020.
A gradual core retail sales slowdown expected ahead, in line with depressed sentiment and a weakening labor market
Economic activity was dragged mainly by a sharp contraction in construction output
Our forecast for 2020 stands at 43%
Uncertainties over the direction of domestic policy are weighing on investment
Industrial production surprised on the downside
Persistence in core inflation stand in the way of a more frontloaded easing cycle
Despite the lower-than-expected inflation, our diffusion index points to above-target prints in coming months
An export normalization amid constrained imports would lead to a sharp narrowing of the current account deficit this year
Food price normalization after the recent supply shocks would aid the expected disinflation process this year
As activity operations normalized during the final month of 2019, we expect a milder year-over-year activity contraction in December
Divisions over the balance of risks for inflation remain
Despite the November surprise, we expect a weakening labor market.
We now expect a 3% contraction for the monthly GDP proxy in November.
Manufacturing exports weakened in November
We expect only a gradual improvement of the labor market in 2020, so the central bank will likely remain on hold.
Services and industrial output were the main drags to economic activity
The board saw no reason to change the status quo
Private gross fixed investment deteriorated further
Headline inflation decelerated, helped by a slowdown in both core and non-core inflation
We forecast a GDP contraction of 2.9% for this year.
We believe that the central bank will remain on hold for some time.
Despite tax reform approval, we note that Colombia's fiscal accounts remain fragile going forward.
At the margin, retail sales contracted sharply on a monthly basis
We forecast a current account deficit of 0.6% of GDP for this year
Only one dissident board member voted for a 50-bp cut
Activity showed a strong rebound in the second half of the year.
We expect rates on hold in coming months. However, a weak activity and higher unemployment rate ahead mean rate cuts remain possible
Reducing the fiscal deficit is the main challenge of the new administration.
With domestic demand still upbeat, and global growth low, we expect the current account deficit to remain wide ahead
We forecast a GDP contraction of 2.9% for this year.
Monthly GDP was dragged by construction output and non-primary manufacturing activity
Social protests may curb activity dynamism ahead
The weakness in U.S. economic activity is reflected more clearly in Mexico’s manufacturing sector
Inflation to hit a record high in 2019.
The expected internal demand collapse will lead to a swift narrowing of the current account balance next year.
Slow core inflation deceleration reinforce a gradual monetary easing cycle for now
So far, only a mild pass-through from the depreciation of the Colombian peso has materialized
Tradable prices are starting to push inflation up
Uncertainties facing the economy are weighing on investment
Rate moves will depend on the evolution of activity, the labor market, exchange rate and inflation expectations
An uncertain inflation path amid opposing pressures inspired caution
With consumer confidence at historic lows and the labor market set to loosen, consumption will slow significantly ahead
Headline and core annual inflation remained practically unchanged
A wide CAD would leave the Colombian peso vulnerable to the domestic uncertainties.
Despite falling activity, FX volatility will get in the way of rate cuts this month.
Rising unemployment rate and a possible labor market reform are key discussion points in the current social protests
The greater Santiago data better reflects the impact of recent events.
Record-low business confidence and weak activity point at no recovery of growth next year.
Strong divisions within the board remain.
Weakness in the U.S. economy is weighing on manufacturing exports
Core inflation projection shows a delay in its deceleration trend, compared to the past inflation report
We revised our GDP forecast down to a contraction of 2.9% for this year (from -2.5% in our previous scenario).
At the margin, retail sales improved on a monthly basis, but momentum was soft in 3Q19
Past GDP revisions show the economy was in a mild technical recession in 1H19
Net direct investment was enough to cover the CAD
Inflation came in broadly in line with market expectations.
Final domestic demand improved in 3Q19, supported by a recovery in private demand and public consumption
Larger-than-expected trade surpluses over the last few months led to an upward revision of our forecast for 2019.
Domestic demand wekaness, the exchange rate adjustment and some global recovery will favor the external account adjustment in Chile
Drivers of growth in the quarter will likely fade in coming quarters.
Robust investment and consumption will drive growth of 3.3% this year (2.6% in 2018).
Robust domestic demand amid weak global activity suggests the current account deficit will remain wide ahead
Exchange rate controls have helped to moderate inflation in the basket of goods.
Marginal changes to the statement, with a dovish tone
The Frente Amplio won in October, but the opposition joins with an eye on the second round.
Central Bank kept policy rate unchanged in October
We believe the output gap would widen further, justifying lower rates
Weakness in the U.S. economy is weighting on Mexico’s manufacturing sector
A widening output gap would likely keep demand-side inflationary pressures contained ahead
Core inflation slowdown increases the odds of Banxico frontloading the easing cycle
Domestic uncertainty would lead to negative effect on import dynamics, while exports could benefit from improving global sentiment
Construction investment supported the recovery
Unwinding of supply-side shocks, a negative output gap and controlled inflation expectations would aid the convergence towards 3% next year.
With consumer confidence falling, credit growth slowing and supply-side shocks affecting operations, consumption is set to slump further.
With activity set to slump in 4Q19, growth this year is likely to come in closer to 2% (2.2% previously expected)
Stable rates remain the status quo
The board continues to see that risks are balanced for inflation.
Weakness signs in the labor market mean robust consumption is not guaranteed
The MoF increased the expected use of the stabilization fund to offset lower revenues in 2019
We expect Imacec growth of 3.6% in September
Risks to the unemployment rate are tilted to the upside given the recent events
Services, the largest sector of the economy, slowed down in 3Q19
Weakness in the U.S. economy is starting to weigh on Mexico’s manufacturing exports
The real wage bill is still helping to smooth the slowdown in private consumption
Headline inflation stood close to Banxico’s central target
We expect activity to weaken further as the October presidential elections approach.
Services and manufacturing sectors decelerated, while mining and construction output recovered
The board left the door open to increasing the size of the monetary stimulus
Exports picked up, amid sluggish imports.
We have adjusted our fiscal deficit projection to 2.3% of GDP (from -1.5%).
Solid import growth and a double-digit export drop led to the largest August trade deficit on record.
Available surveys point to two rounds of voting as the most likely scenario.
We don´t expect more fiscal consolidation ahead.
Disinflation is likely to be slow and bumpy.
Surprisingly robust private consumption means growth this year could exceed our 3% call.
Recovery in economic activity was supported by an improvement of the natural resources sector.
Industrial production improved supported by a recovery in construction and mining output, but momentum remained soft
The acceleration of the easing cycle will depend on the favorable evolution of core inflation
We now expect inflation to end 2019 at 2.9%
The inflation data consolidates our view of a 25-bp rate cut, to 1.75% later this month
The trade data is negative for activity, as it points to weak external and internal demand
The unwinding of food price shocks, the still-negative output gap and controlled inflation expectations would support disinflation next year
Uncertainty surrounding the economy and delays in capital expenditure execution weigh on investment
Surprisingly upbeat August activity means growth could come in a tick above our 2.2% forecast for the year.
Given the strong August print, growth could come in above our 2.2% forecast this year (4% last year).
Inflation crossed below the BCRP central inflation target of 2%.
Below potential growth reinforces the expectation of another rate cut in October.
Wait-and-see mode as the board observes the development of high inflation, resilient activity and a moderating labor market.
We expect the unemployment rate to average 10.3% in 2019, from 9.7% for 2018.
As the labor market reflects economic slack, it would bolster views that demand-side inflationary pressures remain low
We expect another round of weak activity indicators in the coming months.
The probability of a lower policy rate than that we currently forecast is increasing.
The decline in imports suggests a new round of weak activity following the primary election.
Large uncertainty favors more gradual cuts ahead, with incoming data key behind the timing of the next movement.
We recently raised our primary fiscal deficit forecast for this year to 0.8% of GDP.
We expect stable rates for the remainder of the year, but the balance of risks titled towards rate cuts rather than hikes ahead.
Public and private investment deteriorated, while private consumption expanded at a soft pace
No relief for the economic downturn. We recently adjusted our GDP forecasts down to -2.5% (from -1.4%).
A challenging global scenario means Colombia’s external account imbalances are likely to persist
We expect a 1.5% GDP contraction this year (from +1% previously).
We have cut our growth projections for Uruguay to zero growth in 2019 (from 0.5%) and 1.5% in 2020 (from 2%).