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
Downbeat private sentiment amid an uncertain global scenario justify our 2.4% growth call for this year
We expect another below potential Imacec print (monthly GDP proxy) of 2.3% in May (2.1% in April).
A widening output gap, controlled inflation and loosening global financial conditions will allow for lower rates ahead.
The loosening labor market, amid depressed sentiment point to weak consumption ahead.
Weaker growth in machinery and equipment manufacturing hints at an investment slowdown.
With the Chilean growth outlook deteriorating, the labor market is unlikely to improve meaningfully.
At the margin, non-oil imports deteriorated, reflecting weakness in internal demand.
We expect a trade surplus of USD 7.5 billion for 2019
We expect Banxico to deliver two 25-bp rate cuts in the last quarter of 2019
We note that the risks to our GDP growth forecast for the year (-1.4%) are still tilted to the downside
Services sectors deteriorated further, while manufacturing sector improved somewhat.
We lowered our GDP forecast for 2019 to 1.7% from 3% due to the drought and a scenario of decelerating regional and global growth.
We lowered our GDP growth projections to 0.5% for 2019 (from 0.7%) and 1.5% for 2020 (from 2%).
A widening output gap and controlled inflation would likely lead the central bank to cut rates.
Given we hold a less optimistic outlook on growth (and hence subdued inflation ahead), we expect further easing.
Headline inflation reached the upper bound of the range around central bank’s target.
Due to the transitory uptick in imports, further widening of the trade deficit is not expected
We estimate that the 12-month rolling primary deficit fell to 1.6% of GDP from 1.8% in April
Public and private spending weakened, while exports decelerated
The decline was in line with expectations.
Economic activity in April was dragged mainly by fishing output
Weak activity in the first third of the year suggests the impact of weakening global growth could be filtering through to the Colombian
The BCRP highlights softer economic activity
Lower volatility of the exchange rate and tight monetary policy contributed to a modest disinflation
Manufacturing output momentum improved somewhat
With growth risks that are seen tilted to the downside, the central bank left the door open for additional easing.
On an annual basis, headline and core inflation decelerated to still-high levels
Although the central bank does not signal further rate cuts, we see room for an additional 50bps of easing to 2%.
As oil price gains unwind, while domestic demand growth is restrained, we expect a gradual inflation rise ahead
With reduced global demand and low copper prices ahead amid the escalating trade war, there are upside CAD risks
Manageable inflation and a widening output gap opens the door for the central bank to consider additional monetary easing
A recovery of GFI is unlikely to be lasting due to a high uncertainty environment
Amid a challenging global scenario and terms-of-trade that would likely deteriorate, the current account deficit would remain wide this year.
Activity in the primary sector is expected to improve ahead but we see clear downside risks to our 3% growth outlook.
CPI was pressured mainly by non-core items
The increasingly complex external scenario is resulting in growing domestic uncertainty
As headwinds pick up, it is unlikely the unemployment rate would narrow significantly from the 7% recorded last year
Robust machinery and equipment activity along with solid construction activity in 1Q19 bodes well for the investment recovery
Falling participation and overall job shedding does not bode well for consumption dynamism ahead.
Most members believe there are still significant risks for inflation, despite greater economic activity slack
The balance of risks for inflation is titled to the upside
The introduction of rate cuts into the discussion highlights the potential change in course ahead
At the margin, manufacturing exports and non-oil imports weakened
Final domestic demand was dragged mainly by a fall of public demand
Industrial and services sectors weakened
Net direct investment deteriorated in the 1Q19, although it was still enough to cover the CAD
The adjustment of external accounts is on track.
Headline inflation is still above the upper bound of the range around central bank’s target
The risk to our base-case economic scenario for 2019 remains tilted to the downside
higher real wages are a buffer for private consumption
Depressed private sentiment and a slowing global economy mean Chile’s growth risks are tilted to the downside
Financing the CAD remains complicated as inflows of direct investment stay low
The decline in activity was caused by a weaker agriculture performance.
Leading indicators suggest weak GDP growth in 1Q19.
The balance of risks for inflation continues to be tilted to the upside.
Economic activity in 1Q19 was dragged by fishing and construction output
We expect activity to improve from last year, but downside risks to our outlook are rising
Inflation is expected to continue falling in May.
Robust sector indicators and strong imports of capital goods are consistent with GDP growth of 3.4% in 1Q19.
Weaker global economy and some internal demand recovery would prevent a correction of external accounts.
Raising global tensions may be motivating additional caution within the board.
Trade wars on BCRP radar again.
Manufacturing output decelerated on an annual basis
The Easter effect partially faded away in the 2H of April
Contained inflationary pressures and sluggish activity justify stable rates
The composition of imports partly mitigates external vulnerabilities
Uncertainty over the direction of domestic policy and the approval of the USMCA will continue to weigh on investment outlook
We expect inflation to end the year at 3.0% target, however, there are upside risks
Moderating business and consumer confidence amid elevated global risks pose a growing risk to our 2019 growth scenario
The ongoing, but slow, activity recovery is concerning some board members.
Despite low inflation and an expansionary monetary policy, private consumption related activity is weakening
Lower oil production and weak growth are the main risks to public finances
CPI was driven by an increase in prices of bus transportation, tourism related services and seafood due to Easter holidays
On an annual basis, Industrial sector contracted, while services sectors moderated its pace
While there are some positives, the labor market remains weak
Despite weak industrial activity, the investment outlook remains positive.
The risks to our base-case economic scenario for 2019 are high.
In an environment of low inflation and expansionary monetary policy, we expect employment to improve gradually
Industrial and services sectors slowed down
Manufacturing exports and non-oil imports improved at the margin, but grew at a soft pace
Reform is essential to fiscal rebalancing
Additional widening in the CAD or tightening of financial conditions could change the mood in the board
Higher real wages are a buffer for private consumption
CPI was pressured by an increase in prices of tourism related services and airfares due to Easter holidays
Weak activity and currency lead to a rapid adjustment.
We note an upward risk to our forecast of a deficit of 0.5% of GDP
Still weak energy exports is offsetting the moderation in imports.
Low inflation allowed monetary-policy easing
Inflation remains above the target range.
The bar for foreign exchange sales by the central bank is now lower
The central bank has gone fully neutral
Fishing, construction and metallic mining output were the main drags to economic activity
April’s communique tone remained practically unchanged compared to last month statement
Manufacturing sector fell on a quarter-over-quarter basis
However, deputy governor Esquivel advocated for a more neutral tone in the policy statement.
Core inflation remained practically unchanged compared to last month
We expect economic activity to slow to 1.4% in 2019 (from 2018: 2.0%)
Weakening industrial export dynamics reflect the slowing global economy
As the food price uptick passes, inflation would return towards the 3% target.
A moderation in downside inflationary pressures is in line with the view that low inflation is transitory
Mining activity was affected by transitory factors
Low rates and a prolonged period of mild inflation would aid retail dynamism going forward.
CPI was pressured by seasonality in prices from vegetables and legumes and education services
We believe that the central bank will remain on hold for the time being and move closer to neutral rates only later this year.
Arrival to neutral rate delayed to 1H21.
Rising participation partly explains the sharp unemployment rate rise.
Stable rates for most of this year is the likely base case scenario
In year-over-year terms, activity fell by 5.7%, slightly better than the market consensus expectations
The balance of risks for inflation continues to be tilted to the upside.
Deceleration in manufacturing exports and non-oil imports reflects some weakness in February’s economic activity.
The rapid adjustment of the current account deficit is ongoing.
The deceleration of retail sales will be curbed by higher real wages
Export growth was driven by non-agricultural products
Manufacturing and services sectors grew at a below trend rate
We only expect a rate hike by the end of the year
Annual inflation continues within the range around central bank’s target
Public and private demand decelerated on an annual basis
We project a GDP contraction of 1.2% for this year.
We adjusted our 2019 GDP growth forecast to 3.5%, down from 4% previously
A wide-current account deficit mean risks are tilted towards some weakening of the Colombian peso
We note that the deficit includes extraordinary revenues of 1.4% of GDP related to the “over 50” law
As domestic demand continues to expand at a decent pace, we expect the current account deficit to remain wide