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Summary of Latin America Weekly Market Economics Report - 28 September 2018

Core Content Overview

This report provides a weekly economic update for key Latin American countries, focusing on industrial production, inflation trends, fiscal policy, and monetary policy outlooks. It also highlights upcoming economic data releases and political developments that may influence market dynamics in the region.

Key Events and Analysis

Brazil

• Election Focus: The October presidential election is a major concern, with potential policy changes expected to influence GDP growth by up to 3 percentage points in 2019.
• Industrial Production (IP): August IP data is expected to show a slight deceleration to -0.1% m/m, down from 1.0% m/m in July. Annual growth is forecast to slow to 2.6% y/y from 4.0% y/y in July.
• Economic Indicators:
  • The Brazilian Central Bank (BCB) may adjust its policy stance based on the election outcome and economic performance.
  • Consumer confidence is expected to remain high but may moderate slightly due to the political uncertainty.
  • Vehicle production and sales are closely monitored, with data expected to show a decline in production and stable sales.
  • July GDP is forecast to show a 7.2% y/y growth in gross fixed investment (GFI), driven by capital goods imports and construction activity.

Mexico

• Monetary Policy: Banxico is expected to keep the policy rate at 7.75%, maintaining a hawkish tone due to stable core inflation and moderate currency depreciation.
• NAFTA Deal: The draft of the bilateral US-Mexico agreement is expected to be published by 30 September, potentially influencing trade and economic policy.
• Economic Indicators:
  • Consumer confidence report on September 18 is expected to remain at high levels.
  • Banxico’s economists’ survey on Monday could indicate a slight rise in CPI expectations due to higher energy prices.
  • Gross fixed investment for July is forecast at 7.2% y/y, showing continued expansion.

Argentina

• Fiscal Outlook: The BCRA survey is expected to lower the growth outlook and revise the 2018 inflation forecast upward.
• Debt and Austerity: Public debt is projected to rise to 82% of GDP by year-end, necessitating further fiscal austerity measures.
• Inflation Trends:
  • Annual CPI is expected to rise to 3.20% y/y in September, driven by gasoline and services prices.
  • Core CPI is likely to decelerate slightly to 3.76% y/y and 0.16% m/m, reflecting benign underlying trends.
  • Industrial production for August is forecast to show a -5.7% y/y growth, while construction activity is expected to rise by 0.7% y/y.

Colombia

• Fiscal Gap: The 2019 budget bill is expected to add 1.2pp of GDP in primary expenditure, but fiscal reform will face political resistance.
• Inflation Outlook:
  • September CPI is forecast to rise to 3.20% y/y, with a 0.14% m/m increase.
  • Core CPI is expected to slow to 3.76% y/y, with a 0.16% m/m rise, indicating a continued downtrend.
  • Non-tradable inflation is losing pace outside seasonal patterns.
• Exports: August exports are forecast to reach USD3.8bn, up 20% y/y, driven by higher crude oil prices and recovery in coal and gold shipments.

Key Economic Indicators and Forecasts

Political and Policy Developments

• Brazil: The October election is a key event, with Fernando Haddad and other candidates vying for the presidency. Polls suggest political uncertainty could influence economic policy and growth.
• Mexico: The López Obrador administration is pushing for a 13% y/y minimum wage increase in 2019, part of a plan to double the minimum wage by 2024.
• Argentina: Debt levels are rising, and the government may need to implement further austerity measures to stabilize the economy.
• Colombia: The government is working on a fiscal reform bill to address the budget gap, but political resistance may delay implementation.

Market Outlook and Risks

• Brazil: Economic growth and inflation are sensitive to the outcome of the election and subsequent policy decisions.
• Mexico: Inflation expectations remain anchored, but higher energy prices could push CPI up.
• Argentina: High debt levels and potential rating downgrades are risks, especially if fiscal austerity measures are not effective.
• Colombia: The fiscal gap and inflationary pressures from gasoline and food prices are key concerns, though core inflation shows a benign trend.

Conclusion

The Latin America region faces a mix of political and economic challenges this week, with the Brazilian election and NAFTA developments taking center stage. While Colombia and Chile show steady growth and inflation trends, Argentina and Mexico remain under pressure from fiscal and monetary policy considerations. Investors should closely monitor upcoming data releases and political developments for potential shifts in market sentiment and policy direction.