Why Did Brazil Underperform its Peers in 2012? Policy.

The end of Q4 brought forward interesting dynamics in the LatAm region: Namely, a sharp deceleration in inflation in every inflation-targeting economy, with the exception of Brazil (although we expected inflation to soothe by year-end in Mexico, Chile and Peru, the deceleration was much stronger than anticipated, and downward revisions to our inflation forecasts could […]

Chile: Industrial Output Disappointing; Activity Indicators Robust

Industrial output stayed in negative territory in February; contracting 1.1% m/m (-0.5% m/m in January). On a yearly basis, industrial production decelerated sharply to 1.9% y/y (3.4% y/y 3MMA), surprising the consensus (4.5% y/y) and RGE (3.8% y/y) on the downside. Disappointing results in consumer (-1.9% y/y) and intermediate (3.4% y/y)—accounting for 97% of the index—pressed down.

Higher-Than-Expected Inflation in Peru

Headline inflation climbed in January by 0.38% m/m (consensus, 0.35% m/m; RGE, 0.28% m/m), led by significant gains in housing and food costs. The sharp increase in housing costs (1.86% m/m from 0.19% m/m) comes as a result of revised electricity tariffs and potable water, and higher cooking gas prices resulting from adjustments in refineries during December. Fruits, edible oils, bread and some grain prices affected the food component of the index, which recovered from four months of negative monthly inflation, printing a positive 0.52% m/m in January 2011. Other goods and services also accelerated, driven by hotel lodging and personal items. Transport, apparel and health-care prices decelerated.

Chile’s Industrial Production Lower than Expected

Chile’s industrial production in September came in lower than expected by the markets (6% y/y) and RGE (5.2%) at 3% y/y, falling short of its 4.4% y/y three-month moving average (3MMA) through August and showing a continued normalization of industrial activity. Consumer durables cooled to 13.3% y/y (34.9% y/y 3MMA), consumer non-durables eased to 1.5% […]

Venezuela’s Chavez Needs the Opposition

The results of the September 26, 2010, National Assembly elections in Venezuela were very interesting for the country’s future. Although claiming over 52% of the votes, the opposition managed to obtain only 38% of representation in the Assembly. This disparity was a result of the new electoral law, which re-allocates vote representation in the different states. Without two thirds of the Assembly, President Hugo Chavez will have to reach consensus with the opposition in order to approve major laws, enhancing political debate in the country and addressing concerns of a greater share of the population.

Colombia’s Central Bank Stays on Hold

The Colombia’s central bank (Banrep) left its benchmark interest rate unaltered at 3% at its September 24, 2010, meeting, along with the market and RGE’s expectations. Although the latest inflation data was above Banrep’s expectations, inflation remains in line with Banrep’s technical studies, which show that inflation will probably rest within the target range in 2010 and 2011. According to the Banrep’s press release, core inflation remains stable and inflation expectations rest at low levels. The economic recovery is evolving as expected, and is not generating inflationary pressures. Recovering growth is witnessed through consumer confidence, private investment and the recovery of the financial system. With respect to the global economy, the press release mentioned that growth in Europe and in the U.S. will be less than previously forecast, while Asia and Latin America show better dynamics. Conditions are favorable for the sustainability of Colombia’s growth.

Uruguay’s Economy Grows 9.6% y/y in H1 2010

Uruguay continued to grow robustly in Q2 2010, with a 10.4% y/y growth, outperforming Q1’s 8.8% y/y expansion and averaging a 9.6% y/y growth in H1 2010. On a seasonally adjusted basis, Uruguay expanded by 2.6% q/q, at a seasonally-adjusted annual rate (SAAR) of 10.9%, after Q1’s 2.03% q/q SA growth (8.4% SAAR). Strong domestic demand and recovered external accounts led the expansion in Q2. Fixed capital investment jumped to 16% y/y from 6.6% y/y in the last period, led by a 24% y/y increase in private investment, balanced by a 4% y/y contraction in public investment. Consumption jumped over 2.5 points to 10.7% y/y, while government spending shrunk a point to 4.6% y/y. External accounts also gained terrain, with exports surged by 17.3% y/y and imports 17.5% y/y from 3.9% y/y and 10.6% y/y, respectively.

Chile’s Growth Expectations Revised Upwards

The central bank of Chile (BCCh) revised upwards its 2010 GDP growth expectations to the 5-5.5% range from 4-5% in the previous release, thanks to a stronger-than-expected recovery during H1 2010 and early data for Q3 2010. The driver of growth has been domestic demand, characterized mainly by fixed capital formation and inventory restocking. Investment composition is expected to shift toward construction from machinery and equipment, which buoyed in H1 2010. Both transitory (earthquake rebound and low base) as permanent (monetary stimulus, credit and labor markets, consumer and business confidence) factors are behind Chile’s rapid recovery. This recovery has translated into an earlier closing of the output gap than expected in June’s IPOM, now expected for H1 2011. Still, economic expansion in upcoming quarters should remain strong, albeit slower than in H1 2010 as recovery effects from the earthquake vanish and the global economy slows down. In 2011, the economy is expected to expand between 5.5-6.5%, aided by a low base effect in Q1.