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Latin America Weekly Market Economics Summary - 10 July 2017

Core Content Overview

This report provides a detailed analysis of key economic events and market outlook for Latin America, focusing on Brazil, Mexico, Colombia, Chile, and Argentina. It highlights upcoming data releases, policy decisions, and market expectations for the week of 10–14 July 2017.

Key Events and Analysis

Brazil

• Economic Activity: Retail sales and real GDP data for May are expected to be positive, indicating a slight recovery. However, growth has been volatile due to political uncertainties and high leverage.
• Labour Reform: The Lower House is expected to approve the labour reform in July or August, which is a significant milestone for the country.
• CPI and Inflation: The FGV CPI IPC-S is forecasted to show a slight monthly increase of 0.2% m/m and 2.5% y/y. The broader CPI is expected to rise by 4.0% y/y.
• Political Uncertainty: The ruling coalition's majority may prevent an investigation into President Michel Temer's corruption allegations.
• Industrial Production: May industrial production is expected to rise by 1.5% y/y, driven by a rebound in auto production, though it remains weak overall.

Mexico

• Industrial Production: May industrial production is expected to show a 1.5% y/y expansion, with auto production up by over 13%. However, the overall industrial activity remains subdued.
• Vehicle Production and Exports: June vehicle production and exports are key indicators for Q2 activity. The auto industry has a significant impact on manufacturing and intermediate goods sectors.
• Wage Growth: Nominal wage growth is expected to remain around 4.8%, which is below inflation, affecting real earnings and retail sales.
• Elections: The 2018 election is gaining traction, with the PRI party considering external candidates to remain competitive. AMLO and Zavala are the main front-runners.

Colombia

• Policy Minutes: The central bank's policy minutes will be a key focus, as they may indicate a potential pause in the easing cycle.
• Retail Sales and Industrial Production: Both are expected to be weak, with retail sales declining by 2.0% y/y and industrial production contracting by 6.8% y/y. These data suggest continued economic challenges.

Chile

• Monetary Policy: The central bank (BCCh) is expected to maintain its current interest rate of 2.5%, despite the June CPI surprise. The CPI is forecasted to be 2.5% for December 2017.
• Inflation Expectations: Inflation expectations remain anchored at the 3% target, and the BCCh is unlikely to change rates soon.
• Surveys: The central bank will release surveys of economists and traders' expectations, which will likely show a decline in inflation expectations due to the June CPI surprise.

Argentina

• CPI Index: Indec will publish a new national CPI index for the first time, which will be used as the central bank's benchmark.
• Monetary Policy: The central bank (BCRA) is expected to keep interest rates unchanged this week, with inflation remaining a concern.
• Inflation Trends: The BA CPI is forecasted to rise by 22% y/y, while the national CPI is expected to grow at a slower pace.
• Economic Outlook: The central bank's intervention in the secondary market suggests concern over inflation, but the easing cycle is likely to be delayed until H2 2017.

Economic Calendar Highlights (10–14 July 2017)

Summary of Main Views

• Brazil: Economic activity is showing signs of a potential recovery, but political uncertainty and high leverage continue to hinder robust growth. The labour reform is a key legislative milestone.
• Mexico: The auto industry is a key driver of industrial production, which is expected to improve in May. However, wage growth remains subdued, impacting consumer demand.
• Colombia: The central bank is likely to hold off on rate cuts, with weak retail and industrial data expected. The policy minutes will provide clarity on the central bank's stance.
• Chile: The central bank is expected to keep rates unchanged, as the CPI surprise does not alter its neutral stance. Inflation expectations are anchored at the 3% target.
• Argentina: The new national CPI index will be used as the central bank's benchmark. The monetary policy decision is expected to remain on hold, with inflation still a concern.

Key Information

• The report is produced by the Latam Market Economics team at BNP Paribas.
• The document serves as investment research and is subject to the MiFID regulations.
• Legal notices and jurisdiction-specific disclosures are included for compliance purposes.
• All data and forecasts are based on public sources and are not guaranteed to be accurate or complete.