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Summary of Latin America Weekly Market Economics (29 January-3 February 2018)

Core Content

This document provides a comprehensive overview of key economic and political events across several Latin American countries for the week of 29 January to 3 February 2018. It highlights the central bank decisions, GDP data, inflation expectations, and the ongoing NAFTA negotiations, focusing on Brazil, Mexico, Colombia, Chile, and Argentina.

Key Events Overview

Brazil

• Industrial Production Data: Expected to show strong growth at 1.9% m/m s.a. for December, which could lead to a deceleration in annual growth from 4.7% y/y to 3.0% y/y due to base effects.
• Lula's Legal Status: The Appeals Court upheld Lula's corruption conviction, making him ineligible to run for president, though he can still campaign until 15 August.
• Economic Indicators: The National unemployment rate for December is expected to remain at 12.0%. The FIPE CPI m/m for January is forecasted at 0.55%.
• Market Coverage: Marcelo Carvalho is the head of Emerging Markets Research, Latam at Banco BNP Paribas Brasil S.A.

Mexico

• NAFTA Talks: The sixth round of NAFTA negotiations is set to conclude on Monday, with key discussions on rules of origin and dispute settlement. Talks may extend into H2 2018.
• GDP Data: Preliminary Q4 GDP growth is expected at 1.1% q/q s.a., and annual growth at 2.0% y/y for 2017. The document forecasts a slight deceleration in 2018 to 1.5% y/y.
• Fiscal Deficit: The fiscal deficit for 2017 is forecasted at 2.2% of GDP, a 1.4pp improvement from 2016. A similar deficit is expected for 2018 at around 2% of GDP.
• Credit and Inflation: The credit report is expected to reflect ongoing monetary tightening, with loan concessions slowing. The IMEF manufacturing index for January is expected to decouple from the US ISM indicator.
• Market Coverage: Luiz Eduardo Peixoto covers Mexico, Colombia, and Brazil at Banco BNP Paribas Brasil S.A.

Colombia

• Monetary Policy: BanRep is expected to keep rates on hold, with a likely cut in March. The CPI is forecasted to dip below 3.5% by Q1 2018, allowing for an expansionary policy push.
• Unemployment: Urban unemployment is expected to finish 2017 at around 10%, rising from November. National unemployment is forecasted at 8.4%.
• Market Coverage: Gustavo Arruda and Florencia Vazquez cover Brazil and Argentina, Chile respectively at BNP Paribas.

Chile

• Monetary Policy: BCCh is expected to keep the policy rate on hold for the week, with a possible cut in March. The manufacturing production growth is likely to have accelerated in December.
• Inflation Expectations: Inflation expectations are currently anchored, but if they weaken, a 25bp rate cut could be expected. The IMEF manufacturing index for January is forecasted at 51.7.
• Market Coverage: Florencia Vazquez covers Argentina and Chile at BNP Paribas Sucursal Buenos Aires.

Argentina

• Monetary Policy: BCRA delivered a second 75bp rate cut, contrary to consensus expectations. The central bank continues to see room for further easing.
• Inflation and Expectations: Inflation expectations for 2018 are expected to deteriorate further, moving away from the new 15% target. Rate expectations are likely to increase.
• Economic Indicators: December industrial production and construction activity are expected to show growth at 3.5% y/y and 21.6% y/y respectively. Tax revenue for January is forecasted at ARS235.2bn.
• Market Coverage: Florencia Vazquez covers Argentina and Chile at BNP Paribas Sucursal Buenos Aires.

Main Highlights and Key Views

• Industrial Production: Positive trends are expected in Brazil and Chile, with Brazil's data likely to confirm an economic uptrend, while Chile's manufacturing is forecasted to accelerate.
• Inflation Management: Central banks in Brazil and Chile are closely monitoring inflation, with Brazil's CPI showing a potential deceleration and Chile's expectations remaining anchored.
• NAFTA Negotiations: The sixth round is nearing its conclusion, with a likely extension into H2 2018. If the US pulls out, the status quo is expected to prevail temporarily.
• Monetary Policy Outlook: Colombia is expected to maintain rates on hold with a potential cut in March. Argentina continues its easing cycle, while Chile is likely to follow a similar path.
• Economic Outlook: Mexico's economy showed resilience in 2017, with solid GDP growth. However, 2018 is expected to see a slight slowdown. Colombia's economy is projected to have weak overall performance in 2017 but may improve in 2018 with more optimistic sentiment.

Economic Calendar Highlights

• Monday, 29 January: Brazil's industrial production data, Mexico's NAFTA joint statement.
• Tuesday, 30 January: Brazil's FGV inflation data, Mexico's GDP figures.
• Wednesday, 31 January: Argentina's industrial production and construction data, Brazil's unemployment rate, Chile's copper production.
• Thursday, 1 February: Brazil's industrial production, Chile's overnight rate, Mexico's leading indicators.
• Friday, 2 February: Argentina's central bank survey, Brazil's CPI, Mexico's vehicle sales.

Key Views and Forecasts

• Brazil: Industrial production is expected to be positive, with a possible slowdown in annual growth. Political developments around Lula's conviction are likely to have limited direct impact on the economy.
• Mexico: The economy showed resilience in 2017, with a 2.0% y/y growth. The focus is on the progress of NAFTA talks and fiscal consolidation.
• Colombia: The central bank is expected to keep rates on hold, with a likely cut in March. Inflation is expected to moderate in Q1 2018.
• Chile: The central bank is expected to remain on hold, with a possible rate cut in March. Manufacturing growth is likely to accelerate, and the economy is expected to benefit from a more optimistic outlook.
• Argentina: Inflation expectations are expected to rise further, and the central bank may continue its easing cycle. Economic indicators show mixed performance, with some sectors improving while others remain weak.

Conclusion

The week ahead in Latin America is marked by key economic data releases and central bank decisions, with a focus on inflation, growth, and monetary policy. Political developments, such as Lula's conviction, add to the narrative but are unlikely to significantly impact the economic outlook. The overall sentiment is cautiously optimistic, with expectations of continued monetary easing and potential growth in key sectors.