ECONOMIC OVERVIEW
- The week ahead in Latin America will start with Brazil’s definitive election in the rear-view mirror—or not. A very narrow margin of victory for Lula could see Bolsonaro challenge the results of the election.
- Elsewhere in the region, the focus will be on Mexican Q3 GDP, Peru Oct CPI, and Chilean Sep economic activity on the data front.
- While the Latam calendar presents several key local events to monitor, the main driver of the performance of regional (and global) assets will likely be the Fed’s decision on Wednesday.
PACIFIC ALLIANCE COUNTRY UPDATES
- We assess key insights from the last week, with highlights on the main issues to watch over the coming fortnight in the Pacific Alliance countries: Chile, Colombia, Mexico, and Peru.
MARKET EVENTS & INDICATORS
- A comprehensive risk calendar with selected highlights for the period October 29–November 11 across the Pacific Alliance countries and Brazil.
![Chart of the Week: Chile: Economic Growth](/content/experience-fragments/scotiabank/global_economics/en/latam_weekly/2022-10-28/master/_jcr_content/root/image.img.png/1666973219729.png)
Economic Overview: Brazil Runoff Vote Aftermath; Global Focus on the Fed
Juan Manuel Herrera, Senior Economist/Strategist
+44.207.826.5654
Scotiabank GBM
juanmanuel.herrera@scotiabank.com
- The week ahead in Latin America will start with Brazil’s definitive election in the rear-view mirror—or not. A very narrow margin of victory for Lula could see Bolsonaro challenge the results of the election.
- Elsewhere in the region, the focus will be on Mexican Q3 GDP, Peru Oct CPI, and Chilean Sep economic activity on the data front.
- While the Latam calendar presents several key local events to monitor, the main driver of the performance of regional (and global) assets will likely be the Fed’s decision on Wednesday.
The week ahead in Latin America will start with Brazil’s definitive election in the rear-view mirror—or not. Despite Lula’s lead in the most recent polls steadying around 5–6ppts over Bolsonaro (amid ‘valid’ votes), the vote is still too close to call convincingly. Survey error margins combined with the possibility of ‘under-polling’ Bolsonaro supporters means the incumbent has a solid shot at staying in power. The Brazilian stock market’s ~5% decline this week owing, in part, to political anxiety could reflect this (compared to ~3% gains in Mexico and ~2% in the US). A very narrow margin of victory for Lula could see Bolsonaro challenge the results of the election and cause additional stress on Brazilian assets and the real.
Elsewhere in the region, the focus will be on Mexican Q3 GDP, Peru Oct CPI, and Chilean Sep economic activity on the data front (see write-ups in the country sections below). The minutes to Brazil’s and Colombia’s most recent central bank decisions will also be watched to refine forward guidance. This may be particularly true for the latter where markets may have forced its hand to deliver a bigger hike at its Friday meeting than it may have wanted a few weeks ago.
While the Latam calendar presents several key local events to monitor, the main driver of the performance of regional (and global) assets will likely be the Fed’s decision on Wednesday. Speculation has built recently over the Fed teeing up a slowing down its pace of hikes at its December meeting, thus concluding a four-meeting streak of 75bps increases (including next week’s). The hawkish message that has accompanied decisions to-date may be toned down and this has provided a tailwind for the Pacific Alliance’s currencies. However, sanguine markets on a soft Fed ‘pivot’ may be underplaying the risk that the Fed disappoints and regional assets could resume their weakening trajectories. For those sensitive to commodity prices, continued declines in these in the background opens up additional downside room. Note that the Bank of England’s policy decision follows the Fed’s on Thursday, and US jobs data on Friday will also play a key role for the market mood.
Chilean and Peruvian markets are closed on the 1st day of the month, with Mexico on holidays the following day alongside Brazil. Colombia’s markets are closed the following Monday.
PACIFIC ALLIANCE COUNTRY UPDATES
Chile—Monthly GDP to Drop Year-on-Year in September
Anibal Alarcón, Senior Economist
+56.2.2619.5465 (Chile)
anibal.alarcon@scotiabank.cl
We expect a GDP contraction of 2.3% y/y in September. On Wednesday, November 2, the central bank (BCCh) will release economic activity data for September. In our view, non-mining GDP should continue to decline in m/m terms, mainly driven by falls in services and trade industries. Along the same lines, mining GDP is also expected to decrease versus the previous month. In this context, we reaffirm our GDP growth projection of 2.1% for 2022. For next year, we anticipate contractions in monthly GDP to last until Q3, which would lead to a decline in economic activity of 0.9% in 2023.
Colombia—BanRep MPR and Minutes; Tax Reform to be Discussed
Sergio Olarte, Head Economist, Colombia
+57.1.745.6300 Ext. 9166 (Colombia)
sergio.olarte@scotiabankcolpatria.com
María Mejía, Economist
+57.1.745.6300 (Colombia)
maria1.mejia@scotiabankcolpatria.com
Jackeline Piraján, Senior Economist
+57.1.745.6300 Ext. 9400 (Colombia)
jackeline.pirajan@scotiabankcolpatria.com
At writing, we assume that BanRep will continue its hiking cycle at its Friday decision as is widely expected, with economists’ projections clustered on a 100bps hike. In this meeting, its main macro projections will be updated and in coming days details about the new macroeconomic scenario will come out with the publication of the Monetary Policy Report on Monday, and the press conference from the central bank staff on Wednesday. The minutes for Friday’s meeting will be released on Tuesday and we’ll look for clues on how soon the end of the hiking cycle is.
On the political front, minister Ocampo said that the Tax Reform will be discussed by the end of the week with Congress in the second debate, and changes in the potential rule to establish surcharges in the mining sector are expected. We expect negotiations between government and political parties to continue, which would lead to see more watering down of the reform towards its final shape.
Mexico—GDP Acceleration Expected in Q3
Miguel Saldaña, Economist
+52.55.5123.1718 (Mexico)
msaldanab@scotiabank.com.mx
In Mexico, GDP flash estimates for 2022Q3 will be released on Monday with analysts expecting year-on-year growth to accelerate from stronger momentum in both industry and services; our most recent forecast sees a 2.6% y/y pace that undershoots the median forecast of 3.3%. On a quarterly basis, growth is expected to maintain a modest pace of around 1%. The GDP monthly proxy has outperformed consensus in five of the first eight months of the 2022 calendar year, including August. With this in mind, analysts have revised their growth forecasts for 2022 higher.
In the Banxico survey also due for release this week (Tuesday), growth expectations could slightly move up to just above 2.0%. However, expectations for GDP growth in 2023 face downward pressure, with the median forecast likely to move below 1.0%, reflecting the risk of restrictive Banxico monetary policy and a weaker US economy. Other expected revisions include upward changes to year-end inflation projections for 2022 and 2023, suggesting that analysts expect ‘stickier’ inflation. In addition, the median interest rate forecast could slightly rise for 2022 as most analysts expect that Banxico will follow the Fed’s hikes—at least until the December meeting, carrying the overnight rate to 10.50% by year-end. Views differ more broadly for end-2023 as the consensus is not clearly aligned regarding Banxico’s terminal rate nor expected size of cuts during the final quarter of 2023.
Peru—Softer Inflation in October Would Not Be Enough to Prevent BCRP Hike to 7.25%
Guillermo Arbe, Head Economist, Peru
+51.1.211.6052 (Peru)
guillermo.arbe@scotiabank.com.pe
Next week, we get preliminary September GDP data in addition to October inflation figures. The information will help the BCRP gauge the balance between growth and inflation when making its policy decision the following week on November 10.
On Tuesday, inflation is expected to change slightly in October from the 8.5% y/y rate in September, which has proved sticky (chart 1). The key price indicators we track point to inflation of around 0.2% m/m in October. Given that this monthly figure will replace the 0.56% of October 2021 in the year-on-year readings, we expect yearly inflation to come in at around 8.1% y/y in next week’s data.
![Chart 1: Peru: BCRP Reference Rate vs Headline Inflation](/content/experience-fragments/scotiabank/global_economics/en/latam_weekly/2022-10-28/master/_jcr_content/root/image_1604448846.img.png/1666974097056.png)
There is not much room for inflation to decline again in November, but should fall in December, to end the year broadly in line with our forecast of 7.7%. The BCRP knows all of this.
Lately, monetary authorities have been signaling greater concern for GDP growth. And concerned they should be, as GDP growth came in under 2% for the second month in August (1.7% y/y after 1.4% y/y in July). We’ll get a good sense of GDP growth for September when the National Statistics Institute releases information on resource sectors and cement demand on November 1. For the time being, we expect GDP growth to creep back above 2% y/y in September and beyond but that won’t fool the BCRP that knows that this would be entirely due to the Quellaveco copper mine coming online, not because of a pick-up in domestic demand. The problem is that growth is lagging at a time when inflation is stabilizing, but it is not falling, at least not with conviction. Thus, we are inclined to hold unchanged our forecast of another 25bps increase in the BCRP reference rate in November, to 7.25%, with which the BCRP would be ending the rising reference rate cycle. However, we do not discount the possibility that the BCRP stays put at 7.0%. This could occur if there is a sharp enough drop in inflation expectations twelve months out, which is a key variable for the BCRP in its policy decision.
![Charts 1-6 Key Economic Charts](/content/experience-fragments/scotiabank/global_economics/en/latam_weekly/2022-10-28/master/_jcr_content/root/image_1905289074.img.png/1666974130085.png)
![Charts 1-6 Key Market Charts](/content/experience-fragments/scotiabank/global_economics/en/latam_weekly/2022-10-28/master/_jcr_content/root/image_1905289074_cop.img.png/1666974142317.png)
![Charts 1-6 Yield Curves](/content/experience-fragments/scotiabank/global_economics/en/latam_weekly/2022-10-28/master/_jcr_content/root/image_1905289074_cop_1998775781.img.png/1666974161718.png)
![Charts 7-12 Yield Curves](/content/experience-fragments/scotiabank/global_economics/en/latam_weekly/2022-10-28/master/_jcr_content/root/image_1905289074_cop_510131636.img.png/1666974186349.png)
![Charts 13-18 Yield Curves](/content/experience-fragments/scotiabank/global_economics/en/latam_weekly/2022-10-28/master/_jcr_content/root/image_1905289074_cop_1776006466.img.png/1666974201307.png)
![Market Events & Indicators for October 29 - November 11](/content/experience-fragments/scotiabank/global_economics/en/latam_weekly/2022-10-28/master/_jcr_content/root/image_331893703.img.png/1666974219559.png)
![Market Events & Indicators for October 29 - November 11](/content/experience-fragments/scotiabank/global_economics/en/latam_weekly/2022-10-28/master/_jcr_content/root/image_1355127484.img.png/1666974283217.png)
LOCAL MARKET COVERAGE | |
CHILE | |
Website: | Click here to be redirected |
Subscribe: | anibal.alarcon@scotiabank.cl |
Coverage: | Spanish and English |
COLOMBIA | |
Website: | Click here to be redirected |
Subscribe: | jackeline.pirajan@scotiabankcolptria.com |
Coverage: | Spanish and English |
MEXICO | |
Website: | Click here to be redirected |
Subscribe: | estudeco@scotiacb.com.mx |
Coverage: | Spanish |
PERU | |
Website: | Click here to be redirected |
Subscribe: | siee@scotiabank.com.pe |
Coverage: | Spanish |
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