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Summary of Latin America Weekly Market Economics Report – 27–31 August 2018

Core Content Overview

This report provides an analysis of key economic events and developments in Latin America for the week of 27–31 August 2018. It highlights economic data releases, political developments, and central bank activities across Brazil, Mexico, Argentina, Colombia, and Chile.

Key Events and Analysis

Brazil

• Economic Data: A full week of data releases, including the Q2 real GDP growth, July credit report, and labour market data.
• GDP Growth: Expected to be flat at +0.0% q/q s.a., due to the impact of the truck drivers’ strike between May and June. Q2 growth is likely to be softer than forecast, but some recovery is expected in the coming quarters.
• Credit Report: Indicates a recovery in private sector bank lending, with public sector banks still contracting their balance sheets.
• Election Tracker: The formal campaign has begun, with Lula's registration as a presidential candidate under review. Despite potential rejection, he will remain a polling candidate until the decision is finalized.
• Fiscal Report: July fiscal report is expected to show a deficit, highlighting challenges in meeting the primary budget target of 0.9% of GDP for 2018.
• Unemployment: National unemployment rate is expected to remain at 12.4%, with a stable jobless rate.

Mexico

• NAFTA Talks: Negotiations are nearing a conclusion, with a breakthrough possibly occurring before the end of August. However, Canada has been largely excluded from recent discussions.
• Trade Balance: Expected to narrow slightly to USD -0.5bn in July, supported by robust manufacturing exports and a pickup in crude exports, but non-oil exports are losing steam.
• Unemployment Rate: July unemployment is expected to remain stable, but informality and underemployment account for around 60% of total employment.
• Banxico Report: Likely to show a slight deviation in headline inflation from its baseline, with core inflation trending down. However, the central bank is expected to maintain a hawkish stance on monetary policy.
• Budget Balance: July budget balance is expected to be in deficit, and the primary budget target for 2018 remains a challenge.

Argentina

• No Major Economic Data: The week is expected to be quiet in terms of economic releases.
• Focus on Markets and Politics: Attention will remain on market performance and political developments, with no significant fiscal data expected.

Colombia

• Tax Reform Debate: The government is preparing to send the tax reform bill to Congress, with the final version likely to arrive in late September.
• Fiscal Policy: The new government is expected to adopt a tighter fiscal policy than initially proposed, due to the need to maintain fiscal fitness and avoid jeopardizing investment-grade ratings.
• Unemployment: Urban unemployment is expected to decline slightly to 10.7% in July, but weak job creation persists, with a stronger recovery anticipated in Q4.
• Central Bank: No rate decision is expected at the next meeting, with the next policy rate decision set for 28 September.

Chile

• Industrial Growth: Manufacturing production is expected to grow at 4.8% y/y in July, reflecting improved business confidence.
• Unemployment Rate: Expected to remain at 7.2%, indicating a stable job market.

Economic Calendar Highlights

Key Takeaways

• Economic Data: Brazil and Mexico are expected to release significant economic data, including GDP, credit reports, and trade balances.
• Political Impact: Political developments, particularly in Brazil and Mexico, are likely to have a major influence on market sentiment.
• Fiscal Policy: Tighter fiscal policies are expected in Colombia and Mexico, especially in light of ongoing reforms and budget targets.
• Monetary Policy: Central banks in Brazil and Mexico are likely to maintain a cautious stance, with no immediate rate changes expected.
• Trade and Inflation: NAFTA negotiations remain a key topic, with potential for a deal by the end of the month. Inflation trends are mixed, with core inflation trending down but headline inflation still under pressure.

Analysts and Legal Notice

• Analysts: The report is produced by the Latam Market Economics team of BNP Paribas, with coverage from various regions.
• Legal Notice: This document is non-independent research and may be subject to conflicts of interest. It is intended for professional clients and is not investment advice. It is not a prospectus and is subject to legal restrictions in various jurisdictions.

This summary captures the essential economic and political developments for the week, highlighting the main data points, policy outlooks, and market implications.