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Market Economics | Latin America Weekly Summary - 18 August 2017

Core Content Overview

This report provides a detailed analysis of economic developments and key events across Latin American countries for the upcoming week, with a focus on Brazil, Mexico, Argentina, Chile, and Colombia. It outlines inflation trends, monetary policy expectations, fiscal updates, and political dynamics, offering insights for investors and market participants.

Key Events and Economic Highlights

Brazil

• Inflation: Mid-month inflation (IPCA-15) is expected to remain below 3.0% y/y, at 2.72%, with a monthly increase of 0.39% due to higher energy prices and a fuel tax increase.
• Current Account: The current account is expected to return to a deficit, with FDI inflows accelerating to USD 5.5bn in July.
• Political Developments: Congress will vote on the new long-term interest rate (TLP) for Brazil's development bank (BNDES), which could help reduce subsidized loans and bring rates down structurally.
• Central Bank Reports: The BCB will release its monthly credit report, highlighting continued deleveraging and stable credit conditions.
• Economic Calendar:
  • 21 August: Brazil publishes trade balance weekly data.
  • 22 August: Argentina releases July budget balance and 7-Day Repo Reference rate.
  • 23 August: Brazil publishes IPCA-15 and FGV CPI data; Mexico releases retail sales data.
  • 24 August: Argentina releases economic activity index and consumer confidence index; Brazil publishes credit report.
  • 25 August: Brazil releases FIPE CPI data; Mexico releases unemployment rate and current account balance.

Mexico

• Activity and Inflation: Economic activity index and final Q2 GDP data will be released on Tuesday. The GDP is expected to show a 1.8% y/y growth and a 0.5% q/q contraction.
• Inflation: The biweekly CPI is forecasted to decline slightly to 0.22% m/m and 6.49% y/y, down from July's 0.25% and 6.59%.
• Fiscal Policy: The 2018 budget talks are expected to focus on cuts near 0.35% of GDP, primarily from investments.
• Monetary Policy Minutes: The release of Banxico's policy meeting minutes on Thursday will provide insight into the central bank's stance on inflation and rate policy.
• Unemployment Rate: Expected to remain stable at 3.3% in July, with a slight downward bias.

Argentina

• Fiscal Deficit: The primary fiscal deficit is expected to rise slightly to 4.2% of GDP in July, with tax revenues growing 30% y/y and spending increasing 28% y/y.
• Inflation: Headline inflation is forecasted to be close to 1% m/m in August, below the 2% mark in July.
• Monetary Policy: The BCRA is expected to remain on hold for the remainder of 2017, with potential rate cuts starting in late September if core CPI inflation moderates.
• Growth: Real GDP growth is expected to be above 4% y/y in July, driven by agriculture, construction, and industrial sectors.

Chile

• Inflation Dynamics: The BCCh's traders survey on Wednesday will focus on rate expectations. Traders still anticipate one additional 25bp rate cut.
• Inflation Data: The biweekly PPI is expected to show 0.0% m/m, indicating stable price pressures.

Colombia

• Economic Releases: A light week with only the July business confidence surveys due on Thursday.
• Political and Social Concerns: Rising tensions in Venezuela are a major concern, leading to increased immigration into Colombia, particularly in border cities.

Main Views and Key Information

• Brazil: Inflation is expected to remain controlled, with a focus on the new TLP and the central bank's reports. The current account is likely to return to a deficit, while FDI inflows are projected to rise.
• Mexico: Economic activity is expected to show a deceleration in June, with the final Q2 GDP reaffirming a 1.8% y/y growth. Inflation is expected to moderate slightly, and the budget talks will emphasize fiscal restraint.
• Argentina: Despite a slight increase in the fiscal deficit, the economy is showing signs of growth. The BCRA is expected to maintain a cautious stance on monetary policy.
• Chile: The central bank's traders survey will highlight rate expectations, with a focus on potential cuts.
• Colombia: Political and social tensions in Venezuela are affecting local economic conditions, particularly through increased immigration.

Summary of Forecasted Data

Market Coverage and Legal Notice

• The report is authored by independent research teams of BNP Paribas and is intended for professional clients and relevant investors under MiFID.
• It is not an offer to buy or sell securities and should not be relied upon as authoritative or as the sole basis for investment decisions.
• BNP Paribas may have a financial interest in the issuers mentioned and may be involved in related transactions.
• The report is subject to legal restrictions in various jurisdictions, including the UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain, and Switzerland.

Conclusion

The upcoming week presents a mix of economic data releases and political developments across Latin America. While Brazil and Mexico are expected to show controlled inflation and some fiscal and economic progress, Argentina and Chile remain cautious in their monetary policy approaches. Colombia faces external pressures due to regional instability. Investors are advised to monitor the key data points and policy decisions closely.