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Latin America Weekly Summary (3 September - 9 September)

Core Content Overview

This week's report provides an economic outlook for Latin American countries, focusing on key events, inflation data, policy decisions, and market dynamics. The analysis includes insights on Brazil, Mexico, Argentina, Colombia, and Chile, with an emphasis on inflation trends, political developments, and central bank responses.

Key Events and Focus

Brazil

• Presidential Election: The October election will be a major focus, with Ibope expected to release poll results during the week. TV and radio campaigns began on 31 August.
• Industrial Production (IP): Expected to decelerate to 1.0% m/m from 13.1% m/m in June, leading to an annual growth slowdown to 2.0% y/y from 3.5% y/y.
• Inflation (IPCA): The IPCA inflation data for July is expected to show 0.00% m/m from 0.33% m/m in June. Annual inflation is forecast at 4.29% y/y, down from 4.48% y/y in July, and is expected to remain below the 4.5% target by year-end.
• Market Closure: Brazilian markets will be closed on Friday in honor of Independence Day.

Mexico

• NAFTA Negotiations: Mexico and the US reached a preliminary trade deal, but the process remains uncertain. Canada is set to join the talks.
• Inflation: The August inflation report is expected to show a 0.58% m/m CPI increase, with 4.88% y/y headline inflation. Non-core pressures are expected to keep CPI from falling further.
• Core Inflation: Core CPI is forecast at 0.17% m/m (3.59% y/y), indicating more benign underlying trends. Banxico is expected to remain cautious, with no further rate hikes in 2018 and potential rate cuts in 2019.
• Consumer Confidence: August consumer confidence is expected to remain high, reflecting optimism post-election of Lopez Obrador.

Argentina

• IMF Discussions: Ongoing talks with the IMF will be in focus, with the government seeking early disbursements to reduce market instrument rollover risks.
• Inflation Expectations: Inflation expectations are likely to rise due to the weakening ARS. CPI is forecast at 4.81% y/y for August, with core CPI at 3.91% y/y.
• Tax Revenues: August tax revenues are expected to improve by 33% y/y, as the currency depreciation and strong US economy support domestic consumption.
• Industrial Activity: Industrial and construction activity reports are expected to show continued recessionary trends.

Colombia

• Tax Reforms: The government faces challenges in passing a comprehensive tax reform. The proposed reduction in corporate tax is expected to be neutral if loopholes are addressed.
• Inflation: CPI is expected to remain near the 3.16% y/y level, with a slight increase to 3.12% y/y in August. Core CPI is forecast to decrease slightly to 3.8% y/y.
• Exports: Exports are expected to expand further, with a focus on agricultural products and a diversification away from energy commodities to reduce current account deficit risks.

Chile

• Monetary Policy: The BCCh is expected to keep the policy rate unchanged at 2.5%, with a gradual removal of monetary stimulus as growth accelerates and inflation pressures increase.
• Inflation: CPI is forecast to rise to 0.40% m/m and 2.80% y/y in August. Core CPI is expected to moderate slightly to 0.13% m/m.
• Economic Activity: Economic activity is expected to moderate in July, with a 2.5% y/y expansion. Mining production is expected to outperform, while manufacturing output is likely to contract.
• Wages and Trade: Nominal wage data and trade balance figures will be released, with exports expected to increase and imports to decrease slightly.

Main Economic Data Releases

Key Insights

• Inflation Trends: Inflation is expected to moderate in Brazil and Chile, while remaining elevated in Mexico and Argentina due to non-core pressures.
• Political Impact: The upcoming presidential elections in Brazil and Mexico are expected to influence market sentiment and policy decisions.
• Central Bank Stances: Central banks are likely to maintain cautious monetary policies, with no further rate hikes in 2018 and potential cuts in 2019.
• Tax Reforms: Colombia's tax reform is a contentious issue, and the government may need to increase taxes to meet fiscal adjustment goals.
• Market Dynamics: The impact of the truckers' strike on inflation appears to be fading, and exports are expected to offset some of the economic slowdown in the region.

Conclusion

This week presents a mix of political and economic developments across Latin America. Inflation remains a key concern, particularly in Mexico and Argentina, while Brazil and Chile are expected to see more moderate trends. Central banks are likely to maintain a cautious stance, and tax reforms in Colombia will be a focal point. The upcoming data releases and policy decisions will be crucial for investors and policymakers in the region.