LatAm : The Week that Passed (March 1, 2019)

Brazil – How Bad was Q4 GDP? Not as bad as it first appears. We remain optimistic about 2019 growth. Clearly, the economy expanding by just 0.1% QoQ sa is not good news. This puts the annual figure below expectations at 1.1% YoY nsa (versus Bloomberg consensus of 1.4% YoY nsa). W e continue to expect 2019 GDP growth at 2.5% YoY. Mexico – Moody’s Views of Pemex and Mexico While Pemex is more at risk of being downgraded than the sovereign, as of now, a downgrading of either the sovereign and/or Pemex does not seem to be imminent. But, if Pemex posts objectively bad numbers for 2019, the chances for a downgrade to junk in the first half of 2020 will materially increase. Mexico – Quarterly Inflation Report (QIR) confirms that rates cuts are coming Banxico’s QIR for October through December which was published this week, confirms our view that 75bps of rate cuts will start in late Q3. We believe Banxico is signaling its confidence in a future downward path of inflation. This, in turn, means that the case for rate cuts is clear. Only a severe depreciation of the MXN would prevent a rate cutting cycle this year. Mexico – GDP Growth Showing Signs of Weakness The economy grew 2.0% YoY in 2018 mainly supported by consumption and services and despite a strong headwind coming from mining (both oil and metals production) and while manufacturing remains weak. Furthermore, as consumption begins to decelerate, the outlook for 2019 growth will further deteriorate. Indeed, in 2019, headwinds will intensify as a byproduct of weak investment growth, low government spending (due to a 1% primary fiscal surplus target), and as the US decelerates. These trends confirm our 2019 GDP growth forecast of 1.5%. Argentina – Electoral Focus Political analysts Daniel Berensztein and Mariel Fornoni recently gave an in-depth look into the election cycle with El Cronista . President Mauricio Macri will likely get 30% of votes in the coming election. If Cristina Fernandez de Kirchner in fact runs, Macri could win an additional 5% due to the public’s unfavorable view of Kirchner’s candidacy. The emergence of a non-conventional candidate like now-Brazilian President Jair Bolsonaro seems unlikely even though the rejection levels for Cristina Kirchner and President Macri stand at 57% and 54% respectively. We complement this pollical analysis with the a recent poll by pollster Federico Gonzalez & Associates published on February 28 . Peru –Lima inflation for February right at the 2.0% target Given this trend in inflation, the BCRP is in no rush to start a hiking cycle. In fact, we now believe that the BCRP will delay the start of a hiking cycle to August (previous forecast May). We expect, at most, two hikes of 25bps during 2019 (current level of the policy rate is 2.75%). Monetary policy as it stands current is very accommodative as the real neutral rate is approximately 1.75% with the real rate running at 0.5%. However, the inflation trend and composition of growth sources (fishing and mining, but not consumption) suggest that the BCRP can keep the policy rate at 2.75% for the coming months. Colombia - GDP growth Looks Solid GDP growth for Q4 came out at 2.8% YoY (0.6% QoQ sa) which was marginally below expectations. This pushed the growth rate for the 2018 year to 2.7% YoY nsa up from 1.4% YoY nsa in 2017 (revised down from 1.8%). We continue to expect 2019 GDP to expand between 3.0% YoY nsa and 3.5% YoY nsa.