Financial markets this week look at budget data in Brazil, inflation in Mexico, economic activity in Argentina

RIO DE JANEIRO, BRAZIL – Brazil, Argentina, and Mexico are the countries where the markets’ attention will be focused this week.

In Brazil, the economic agenda will include the release of unemployment figures for December, fiscal data, the balance of payments for January, and inflation expected in the middle of the month.

On the other hand, Argentine economic activity is expected to show strong GDP growth in the fourth quarter, according to Adriana Dupita and Felipe Hernandez, economists at Bloomberg. Markets will continue to watch for developments in talks with the International Monetary Fund (IMF).

Mexico will release revised fourth-quarter GDP figures and December activity to the north. The economy is still below pre-pandemic levels. On the other hand, the February central bank meeting minutes may show that policymakers are ready to raise interest rates further.

In Peru, fourth-quarter GDP 21 should show that the economy has recovered to pre-pandemic levels, although growth has slowed sharply.

BRAZIL

On Wednesday, consumer prices will be released with a monthly forecast of 0.75% and 10.5% y/y.

According to Bloomberg economists, seasonal increases in school fees and a rise in fuel prices will push overall inflation higher.

“If confirmed, 12-month inflation would remain in double digits and continue to rise,” they said.

On the same day, the seasonally weaker trade balance will be released. In January, semi-annual payments of domestic bond interest to foreign holders will keep the current account in negative territory.

Some expect the current account deficit to be slightly lower than a year earlier, further reducing the 12-month deficit to US$27.2 billion (1.7% of GDP).

FDI is expected to have brought in a net US$3 billion, bringing its total over the past 12 months to US$46 billion and vastly exceeding the current account deficit over the period.

On Thursday, the unemployment rate for December will be released, which economists expect to be 13.5%, the same as in 2020, but with an upward trend in jobs.

The unemployment rate is expected to remain roughly stable on a seasonally adjusted basis. A further slight increase in the labor force participation rate offset the employment expansion (0.4% month-on-month, 9.5% from December 2020).

However, the average income is expected to have fallen in real terms. Observers project a 10.9% year-over-year decline, with a slight, nominal drop added to inflation’s 10% negative impact.

At the end of the week, the primary budget balance for January will be announced, which is expected to be around R$80 billion.

“Strong tax revenues and a seasonal decline in spending likely led to a large budget surplus in January,” experts said.

If confirmed, the 12-month primary surplus would rise to 1% of GDP, the best result since July 2014.

ARGENTINA

In Argentina, the economic activity update for December is expected on Wednesday. “Despite uncertainties on the political front and an agreement with the IMF, we expect the Argentine economy to close 2021 positively,” experts said, with a monthly increase that could reach 0.8% due to less stringent social distancing policies.

If the result is confirmed, the three-month average of this indicator, which is used to project GDP, would show a growth of 1.5% quarter-on-quarter and a 9% year-on-year increase in Q4 2021.

Annual growth would be 10.3%, the strongest in more than a decade, thanks to the base effect, the economic revival, and strongly negative real interest rates. The economy is well above pre-pandemic levels.

PERU

Relevant economic data for the country will be available midweek:

GDP is expected to have increased 3.2% in the year’s final quarter compared to the same period in 2020, which would be consistent with monthly data through December but would show that growth has slowed sharply.

Weaker fiscal and monetary stimulus, increasing policy noise, and tighter external financial conditions were dramatic, so the data point to GDP slightly above pre-pandemic levels.

MEXICO

Inflation will make its presence felt in the home stretch of the week on Thursday, with a possible increase from 7.01% to 7.08% in the first two weeks of February. This would be the first increase since the inflation slowdown began in the second half of November.

As we have observed, most of the increase will be in the energy sector due to higher gasoline and propane prices.

Retail sales will be published on the same day, which probably increased by 4.9% year-on-year in December. The result would mean that sales declined after a steady increase since August from the previous month.

According to the separate data, vehicle sales rose to 97,365 units in December from 82,829 units in November, meaning they were 7.8% lower than a year earlier and 25.4% below 2019 levels before the Covid-19 outbreak.

The consumer confidence index fell to 44.6 from 46.0 in November, above the year-ago reading of 38.4 and the average of 39.5 in available data since 2001.

Separately, the monetary policy meeting minutes will explain the decision to raise the federal funds rate by 50 basis points to 6.0% in February.

The report will reveal the arguments made by Governor Victoria Rodriguez Ceja and three other policymakers in favor of the hike and explain why Deputy Governor Gerardo Esquivel opted for only 25 basis points.

In addition, the record should shed light on whether the decision-makers considered a more extensive hike and provide a better idea of the likelihood and conditions for such an adjustment. It could also shed light on how officials are thinking about further tightening now that rates are near neutral.

As early as the last day of the week, INEGI will release GDP for the previous quarter of 2021. Bloomberg experts expect final growth to be near an initial estimate of 1.0%.

“This represents a 0.1% decline from the previous quarter, which would confirm that the economy fell into a shallow recession in the fourth quarter,” experts said.

The monthly index of economic activity probably rose 1.3% in December from a year earlier.

The data represent a slight increase from the previous month, the second in a row, after falling in the last three months, but remain below the potential associated with the decline in GDP in the fourth quarter, so the economy has fallen into recession.

Manufacturing was the sector with the most significant movements. It rose 1.9% month-on-month in December, reaching pre-pandemic levels.

The last data to be released that day is the trade balance for January. Some estimate that it will show a deficit of US$5.33 billion. This compares with a surplus of US$590 million in December and a deficit of US$1.24 billion a year earlier.