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Summary of Latin America Weekly Market Economics Report - 05 - 10 February 2018

Core Content Overview

This report provides a detailed analysis of key economic events and central bank actions across several Latin American countries for the week of 5–10 February 2018. It outlines expectations for inflation, interest rate movements, and economic performance, with a focus on Brazil, Mexico, Colombia, Chile, and Argentina.

Key Events and Analysis

Brazil

• Selic Rate Cut Expected: The BCB is expected to cut the Selic rate by 25 basis points to 6.75%, marking a new record low. This follows a below-target inflation and signs of economic recovery.
• Inflation Trends: Monthly inflation is forecasted to decelerate to 0.39% in January from 0.44% in December, driven by lower food and gasoline prices. Annual inflation is expected to rise slightly to 2.95%, still below the 4.5% target.
• Retail Sales: Real retail sales are expected to decline 0.6% m/m in December, but will show a 4.3% y/y growth. Broad retail sales (including cars and construction) are projected to grow 5.4% y/y.
• Economic Recovery: Credit growth and improved household debt service are seen as drivers of consumption recovery. The terminal Selic rate is projected to be 6.50% by March 2018.
• Election Impact: With Lula ineligible for the October 2018 presidential election, the report suggests a focus on other candidates and potential shifts in voter support.

Mexico

• CPI Drop Expected: The CPI is forecasted to fall by 1.3 percentage points to 5.5% y/y, easing pressure for further rate hikes by Banxico.
• Banxico Dilemma: The central bank faces a dilemma due to rising inflation expectations, but is expected to maintain the policy rate due to reduced demand pressures and a downward trend in inflation.
• Interest Rate Outlook: The report suggests that Banxico may hold the rate steady, with potential cuts only if risks subside. The policy rate is currently at 7.25%.
• Investment Trends: Gross fixed investments are expected to contract 0.7% y/y in November, though the report anticipates a slight rebound in 2018 due to higher capacity utilization and US demand.
• Industrial Production: Manufacturing production is expected to contract 1.6% y/y in December, while industrial production as a whole is forecasted to contract 1.0% y/y, with some moderation expected in the coming months.

Colombia

• Inflation to Decline: The CPI is expected to drop by 40 basis points to 3.69% y/y, signaling the start of a downward trend in inflation.
• Core Inflation Moderation: Core inflation is projected to fall to 4.77% y/y, a 30 basis points reduction from the previous year.
• Economic Drivers: Lower food inflation, a one-off soccer event in December, and reduced housing pressures are expected to influence CPI numbers.
• Policy Outlook: The central bank may consider additional rate cuts in the coming months, despite recent hawkish signals.

Chile

• GDP Growth Stable: Economic growth is expected to remain stable at 3.5% y/y in December, with a 1.7% m/m seasonally adjusted increase.
• Inflation Outlook: Monthly inflation is forecasted to rise to 0.2% m/m, while annual inflation is expected to moderate to 2.0% y/y, within the central bank’s 2–4% tolerance range.
• Policy Rate: The BCCh is expected to keep the policy rate on hold for now, with a normalization cycle likely in H2 2018 as growth strengthens.

Argentina

• Quiet Week Ahead: The week will be relatively quiet with few economic releases. The January auto sector report will provide early insights into economic performance in early 2018.
• Economic Indicators: Expected data includes vehicle domestic sales, production, and exports, as well as government tax revenue and formal job creation figures.

Key Insights

• Inflation Trends: Across the region, inflation is expected to decelerate in most countries, with Brazil and Colombia showing the most significant declines.
• Interest Rate Movements: Central banks in Brazil and Chile are expected to continue cutting rates, while Mexico may hold steady due to reduced inflation pressures.
• Economic Recovery: Brazil is seen as the most promising for recovery, driven by credit expansion and improved consumption. Mexico and Chile are also expected to show some signs of improvement.
• Policy Uncertainty: Mexico’s Banxico faces a dilemma due to rising inflation expectations and external risks such as NAFTA and FX depreciation.

Economic Calendar Highlights

Legal and Disclaimer Notes

• This document is produced by the Latam Market Economics team at BNP Paribas.
• It is non-independent research and may be subject to conflicts of interest.
• It is not investment research under MiFID II and is intended for Relevant Persons.
• No liability is accepted for inaccuracies or omissions.
• Information is based on public sources and may be subject to change.
• Indicative prices and forecasts are not guarantees and should not be used as a basis for investment decisions.

This summary captures the key economic indicators, central bank actions, and market outlook for Latin America during the week of 5–10 February 2018.