Latin America Report 26-4

Regional recovery remains uneven

  • Latin America’s economy has strengthened in the early months of this year – in fact, our GDP Tracker suggests that year-on-year growth returned to positive territory in Q1 for the first time since mid-20 However, the recovery has so far been uneven. Brazil’s economy appears to be pulling out of its deepest recession in recorded history. Likewise, economic conditions in Argentina improved in Q1. But growth in Colombia and Peru has slowed since the turn of the year, while there’s a chance that Chile fell into recession. Meanwhile, although the business surveys still seem to be overstating weakness in Mexico’s economy, the reality remains that growth has slowed since the turn of the year. The net result is that while the growth figures for the region as a whole are improving, the performance of individual countries has been decidedly mixed.
  • Brazil’s economy seems to be through the worst, with both exports and industrial production on track to post positive growth in Inflation has fallen below the BCB’s 4.5% target, prompting COPOM to up the pace of interest rate cuts. Despite the step-up in policy easing, bond yields have edged up this month on concerns that pensions reforms are stalling in Congress. (Page 2.)
  • Mexico’s economy appears to have held up much better than the survey data suggested in Q And, while inflation is still rising, the stability of the peso over recent weeks means that it is probably close to peaking. The central bank slowed the pace of interest rate hikes at its latest meeting and we don’t think the tightening cycle has much further to run. (Page 3.)
  • The most recent activity data for Argentina have been a bit softer but the bigger picture is that the economic recovery gathered momentum over Q1 as a whol Meanwhile, the central bank surprised the markets by hiking its policy interest rate by 150bp to 26.25% this month. (Page 4.)
  • Colombia’s economy weakened sharply in Q In better news, inflation has continued to fall. (Page 5.) Venezuela has hit the headlines for all the wrong reasons in recent weeks, with violent protests sweeping the country. Meanwhile, state-owned oil company PDVSA managed to scrape together enough funds to make a large principal payment on its dollar bonds. (Page 6.)
  • Chile’s economy remains weak and there is a chance that it fell into a technical recession in The central bank cut its policy interest rate for the third time this year earlier this month. (Page 7.) Elsewhere, economic growth has also slowed sharply in Peru in the aftermath of the worst flooding in decades, although a spike in food inflation is likely to delay interest rate cuts there. (Page 8.)

GDP returned to positive growth in Ecuador at the end of last year and the latest data suggest the pace of expansion accelerated in Q1. Meanwhile, Lenin Moreno of the governing Pais Alliance won this month’s presidential election, albeit by a narrow margin, signalling the continuation of current President Correa’s leftist economic policies. Finally, while Uruguay’s economy remains weak, inflation fell into the central bank’s target range for the first time since 2010.

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