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%).
Economic activity was supported by an improvement in the natural resources sector
Further easing will be dependent on incoming information.
Strong activity momentum, along with rising inflation would lead the central bank to keep rates stable
Consumer prices spiked in August after a new depreciation of the peso.
Weakness in the U.S. economy seems to be starting to weigh on Mexico’s manufacturing sector
The government took a first step in debt-restructuring direction.
Moderating inflation means higher odds of further monetary easing, likely already in September.
Growth and oil production projections are on the optimistic side
We now expect inflation to end 2019 at 3.3%
Declining manufacturing exports along with weakened consumer and capital goods imports hint at unfavorable activity dynamics.
Uncertainty surrounding the economy and delays in capital expenditure execution weigh on investment
Inflation, coupled with positive developments on activity and a wide CAD means the policy rate will likely stay at 4,25% in the near term.
Despite low core inflationary pressures, headline inflation would end the year close to the target
The sluggish start to the year, along with mixed recovery signs, increase the likelihood of growth below our 2.4% call for 2019
More rate cuts are likely, but the timing and magnitude of additional easing is uncertain
The September’s decision raises the likelihood that the easing cycle extends beyond 100-bps, taking rates below 2.0%.
The monthly GDP proxy would grow 3.2% in July, as the boost from manufacturing is partly offset by weaker-than-expected consumption data.
The elevated CAD, rising headline inflation and the weakening of the COP would prevent the central bank from cutting rates in the short-term
Low inflation increases the odds of the BCRP cutting the policy rate further in the short-term
As the growth outlook remains uncertain, we expect job growth to remain contained
Seasonal factors and a low base of comparison aided the activity recovery in the month.
Board members seem to be divided on the monetary forward guidance.
The easing cycle is set to continue.
Non-oil imports deteriorated, dragged by a sharp contraction in imports of capital goods.
Narrower current account was supported by an improvement in the trade balance
Mining and construction sectors were the main drags to economic activity
Narrower current account was supported by an improvement in the trade balance
Headline inflation decelerated, dragged by non-core prices.
There are clear downside risks to our -1.4% GDP growth forecast for this year
The incoming administration will receive lower twin deficits, but the roll-over of debt will be challenging,
The real wage bill is still helping to smooth the slowdown in private consumption
The expected recovery for 2H19 would be lower.
New pulp mill boosts growth.
External headwinds will limit the pace of recovery ahead
As copper prices stay low and domestic demand remains weak, we see the CAD remaining wide
We now see the policy rate ending this year at 7.25%
Inflation is likely to resume an upward trend
Local and global headwinds make a sustained recovery in 2H19 unlikely.
Non-natural and natural resources sectors decelerated in 2Q19
A meaningful activity acceleration in 2H19 remains elusive as consumer confidence stays low, the labor market weak and global growth slows.
With moderating global demand and low oil prices, we expect the CAD to remain wide, at 4.3% of GDP this year
Oil and construction output dragged industrial production
The BCRP didn’t close the door for additional cuts, but they are not granted.
Low core measures and our diffusion index point at contained inflationary pressures
Core inflation still sticky
Weak global demand amid limited domestic demand would keep the CAD above 3% of GDP
The intensity and endurance of the supply shocks likely mean that inflation would end this year at 3.75%.
Lingering uncertainties surrounding Mexico’s economy and transition effect will weight on investment outlook
Despite a more favorable base of comparison and added stimulus measures, sufficient headwinds would limit the recovery ahead
The board likely needs to see confirmation of weaker activity and a looser global monetary stance, so rate cuts in the near term seem unlikely
Low private confidence, a volatile external scenario, contained copper prices, and a weak labor market have resulted in an activity slowdown in 1H19
The likelihood of a larger 50-bp cut in September has increased following recent developments
Widening output gap conditions curb inflationary pressures
Although sequential GDP improved, economic activity remained soft in 2Q19
The MoF is considering using the stabilization fund to offset lower revenues in 2019
Poor manufacturing points to weak consumption and investment, in line with our 2,4% growth forecast for the year.
Despite stable unemployment, poor quality of job creation and falling participation are risks to consumption growth ahead.
In 2Q19, the participation rate dropped to the lowest level since 2Q10, containing a further surge in the unemployment rate
Monthly GDP was dragged by construction and mining
The shift in the trade balance is driven by falling imports.
At the margin, non-oil imports deteriorated, reflecting weakness in internal demand.
Confirmation of weaker-than-expected activity and a the looser global monetary stance needed before lowering rates
The negative impact of the severe drought in 2018 is in the past.
The real wage bill is a buffer for private consumption
Headline and core inflation slowed down, remaining below the upper bound of the range around central bank’s target.
Moderating global demand and low oil prices would keep the CAD wide
July’s decision is in line with our expectation of lower rates (at 2%) by yearend.
Daniel Martínez, Luis Lacalle Pou and Ernesto Talvi will be the main contenders in the presidential elections.
We expect a new monetary policy interest rate cut of 25 bps, leaving the rate at 4.5% for the end of the year.
Moderate disinflation will likely continue in July
Despite firm readings in May, the economy still faces significant headwinds
Real expenditure cuts continued to support fiscal consolidation.
At the margin, oil and construction output dragged industrial production
The majority of board members are still concerned about the evolution of core inflation
Core inflation still uncomfortable
As supply shocks fade, inflation is likely to retreat towards the central bank’s 3% target
Given our outlook of a growth slowdown this year, we do not expect a notable acceleration of inflation
With low global and internal demand growth, the current account deficit is seen staying broadly stable and wide.
Lingering uncertainties surrounding Mexico’s economy will weight on investment outlook