Entries for 'Latin America'
October 26, 2021
El Salvador’s risk premium has skyrocketed amid financing shortfalls and governance issues. A vigorous growth rebound has aided the fiscal balance, but the 2022 proposed budget projects optimistically large gains in tax administration. Financing options are narrowing as IMF negotiations drag on.
October 20, 2021
We project moderate current account deficits despite strong imports. Nonresident capital flows will rebound this year, particularly in Brazil and Chile, and foreign reserves will improve supported by IMF SDR allocation. We see capital flows gradually slowing amid tighter global liquidity conditions.
October 8, 2021
Activity has rebounded faster than expected, spurred by exports and remittances.
Vaccination rollout has accelerated in several countries, aiding th...
September 29, 2021
In this note, we update out view on inflation and monetary policy in emerging markets. Rising inflation, even if partially transitory, has forced the hand of EM central banks. We expect inflationary pressures in many countries to peak in the next six months. Slowing growth, favorable base effects, and lower commodity prices will be the drivers. However, rate hikes were also prompted by expansionary fiscal policy in some cases. Furthermore, tightening global liquidity in 2022 may add pressure on central banks.
September 15, 2021
LatAm central banks have accelerated monetary policy normalization. We expect Brazil and Andean countries to hike faster than market expectations, with Mexico remaining more dovish amid a negative output gap. Risks are tilted up due to potentially worsening global conditions and higher fiscal risk.
August 18, 2021
Partial fiscal consolidation is underway following extraordinarily large deficits in 2020. Revenue has increased above pre-pandemic levels amid the ongoing growth recovery, but withdrawal of fiscal stimulus has been uneven. Fiscal pressure remains high given the debt buildup and deep social needs.
August 2, 2021
LatAm countries have been forced to partially extend fiscal policy support this year amid increased social demands. Maintaining some stimulus while sustaining investor confidence has proven challenging. Fragile public finances could result in undue pressure on monetary policy, weighing on growth.
July 12, 2021
Inflation has picked up amid high commodity prices, supply disruptions, and uneven growth recovery. Scope to postpone monetary policy normalization has rapidly narrowed, and we see most countries hiking this year. Persistent fiscal fragility could complicate orderly unwinding of monetary stimulus.
June 30, 2021
We use VAR models to decompose the effect of commodities and FX on EM inflation. Turkey and Russia, for different reasons, appear most exposed to exchange rate shocks. Headline inflation in South Africa and Brazil appear to be driven by energy prices, while price dynamics in Indonesia are more responsive to non-energy commodities. We expect tight stances in Brazil, Mexico, Russia, Turkey to keep expectations anchored.
June 24, 2021
Growth prospects have improved, spurred by copper prices and public spending; Chile is on track to be one of the first LatAm countries to return to pre-pandemic output. However, political uncertainty weighs on investment, clouding the medium-term outlook. Doubt is rising on the rollback of spending.
June 15, 2021
The economy has not grown since 2018, as deteriorating confidence stifled investment. We estimate that the weakening business climate directly reduced GDP growth by >=0.5 pp a year from 2017 to 2019. Harnessing global tailwinds to avoid a return to secular stagnation will require improved policies.
June 2, 2021
Costa Rica has secured an IMF Extended Fund Facility agreement, as COVID-19 has intensified ongoing fiscal woes. However, significant reform progress seems challenging ahead of the February 2022 elections, and higher interest rates would exacerbate the already-demanding adjustment.
May 25, 2021
China’s economic ties with Latin America grew at 19% compound annual rate over the past two decades thanks to China’s growing appetite for commodities. This note discusses the latest trade and investment developments since a detailed examination of data helps show the changing and nuanced picture.
May 18, 2021
Rapid vaccination and soaring copper prices bode well for a strong recovery. However, high caseloads have prompted renewed mobility restrictions. While a robust policy framework has allowed for sustained policy support, ongoing political changes could result in an expanded state footprint.
May 12, 2021
In Peru, the upcoming runoff could result in a radical policy shift to the left, weighing on the currency despite a strong growth rebound and high copper prices. In Colombia, an ambitious fiscal reform has triggered protests and social unrest, which makes keeping investment-grade status less likely.
May 12, 2021
The COVID-19-induced collapse in international tourism was unprecedented. Even in an optimistic scenario, tourism revenues will remain subdued in 2021. As a result, the economic recovery in countries such as Thailand will be slower. Furthermore, external pressures are set to rise as imports rebound strongly.
April 21, 2021
We compare the cases of 12 countries that have attempted to unify their FX markets. Unified exchange rate systems eliminate distortions, reduce rent-seeking, and boost fiscal revenues. However, successful unification hinges on consistent underlying credit and fiscal policies and broad reforms.
April 14, 2021
Frontier LatAm countries have bounced back following a sharp decline in 2020, but disparities in the recovery remain. Guatemala has already surpassed pre-COVID-19 GDP levels, while Panama continues to face challenges. Fiscal accounts have been severely affected, worsening public financing woes.
March 24, 2021
We forecast a moderate activity upturn in 2021-22, following the deep contraction in 2020. COVID-19 challenges indicate an ongoing need for policy support this year, but external conditions have recently become more volatile. Capacity to keep stimulus while maintaining investor confidence is key.
March 10, 2021
The growth rebound will likely be modest, with positive spillovers from the US reflecting primarily on the current account. The government remains committed to fiscal austerity, increased global financial volatility could impede further monetary easing, and major institutional changes are unlikely.