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
Data in line with the central bank’s narrative
Fishing output and construction sector were the main drags to economic activity
Treasury once again registered a primary surplus in February.
With activity indicators continuing to point at GDP growth below potential, stable rates is likely to persist for some time.
Adjustments in regulated prices as well as the depreciation of the ARS are likely to keep inflation high in March
Risks to economic activity are tilted to the downside
Uncertainty weights on GFI
We have revised our yearend call for inflation to 2.6%.
The BCRP sees non-primary economic activity still showing signs of dynamism
As the domestic demand recovery consolidates and growth of trade partners moderates, a mild widening of the CAD is expected
Lower non-core food prices exerted downward pressure
Following two consecutive months of downside surprises, inflation is likely to end the year close to the 3% target
The positive evolvement of non-mining activity bodes well for the expected recovery.
Wholesale trade bodes well or the investment recovery
Weak labor market numbers reinforce our view that interest rate hikes remain afar
At the margin Headline CPI slowed down, while core inflation remained practically unchanged
The rising CAD could play a more meaningful role on monetary policy decisions ahead
Recovering sentiment and improving copper prices point to favorable activity dynamics in the short term
In 2018, consumption picked up, while gross fixed investment slowed and exports moderated
Some tightening of the labor market is expected this year as it benefits from the lengthy activity recovery
Balance of risk for inflation remains tilted to the upside
We revised our GDP growth forecast for this year downward.
At the margin, manufacturing exports and non-oil imports improved somewhat
Weakness in retail sales is partly due to the recent moderation in labor market indicators
Net FDI was enough to fully cover the CAD in 2018
Risks to economic activity are tilted to the downside
Non-core food items was the main downward pressure for the CPI
Nominal fiscal deficit improved more than expected by the Ministry of Finance
Most members considered PEMEX financial situation as a risk for macroeconomic conditions
We estimated that the 12-month rolling primary deficit as of January totaled 2.6% of GDP, down from the 2.7% in December 2018
We forecast a significant narrowing of the current account deficit this year.
Fishing output and construction were the main drivers during the 4Q18
We still see space for the normalization process to continue in 2H19, but risks are tilted to fewer hikes.
The President approved setting a minimum retirement age of 65 for men and 62 for women, with a transition in 12 years.
The trade deficit widened to USD7.1 billion in 2018 (from USD6.1billion in 2017), ending two years of corrections.
Food prices drove core inflation up.
We expect an activity pick-up this year to 3.3% (2.6% in 2018), aided by a mildly expansionary monetary policy.
The fiscal deficit closed 2018 at 2.7% of GDP, down from 3.5% in 2017
Consumer prices remained stable in January and annual inflation slowed to 2.4%
Mining, construction and manufacturing sectors decelerated
Moderate inflationary pressures are in line with stable rates for the time being.
BCRP is positive on economic activity, while sees diminished external risks for inflation
We believe that the central bank will maintain its holding pattern for the time being and begin a modest hiking cycle only in 2H19
Downside risk to GFI are high
We now expect the central bank to keep the policy rate unchanged throughout this year
Lower energy prices and VAT in the northern frontier exerted downward pressure
We expect the current account deficit to remain broadly stable from last year, contained by low oil prices
Food price normalization and the gradual activity recovery would lift inflation during the year
Weak momentum at the end of last year led us to revise our growth forecast to 3.2% for 2019 (from 3.5%)
Improving private sentiment and strong investment signals likely mean the gradual monetary normalization advances this year
Food and gasoline inflation dragged headline CPI on annual basis
Maintaining monetary stimulus is likely until there is clear evidence that spare capacity is diminishing
Our expected activity recovery this year in part depends on a labor market recovery
Some tightening of the labor market is expected this year
Looking forward, 2019 Budget execution is a risk
We expect the monthly GDP proxy to grow around 3.5% yoy in December
Industrial sector was the main drag to economic activity
We expect a gradual normalization cycle, with risks tilted to fewer hikes
At the margin, manufacturing exports weakened
Still, the economy slowed on an annual basis
Lower VAT in the northern frontier and lower energy prices helped to bring inflation down
Export data is yet to fully reflect the recent oil price moderation
We expect a current account deficit of 1.2% of GDP in 2019.
The risk of a larger primary deficit in 2019 than that targeted (0% of GDP) is high.
Low oil prices and slowing growth for major trade partners are headwinds to the recovery process
Weather factors hindered activity in 3Q18.
A weaker currency and a hike in food prices explain most of the increase in the year
Existing inertia poses a major challenge to faster disinflation.
Fishing output and construction supported economic activity in November