Latin American weekly agenda: Rates in Chile and Colombia; range of data in Brazil

RIO DE JANEIRO, BRAZIL – This week, financial and economic monitors will focus on the decisions of the central banks of Chile and Colombia regarding their reference rates and several indicators from Brazil, such as industrial activity and fiscal accounts.

Meanwhile, Argentina will release January economic activity data, and Peru will publish the new inflationary level.

MEXICO

Bloomberg economists Adriana Dupita and Felipe Hernandez forecast a deficit of US$510 million for February, which compares to a US$6.3 billion gap in the previous month and a surplus of US$2.7 billion a year earlier.

Experts said that higher exports and lower imports should explain the month-on-month difference, and higher imports explain the year-on-year variation.

BRAZIL

Brazil will publish its current account balance on the first day of the week.

Dupita and Hernandez explain that the US$4 billion trade surplus in February, together with the favorable seasonality of interest payments and profit and dividend remittances, would generate a relatively small current account deficit of about half its year-ago level.

It would bring the 12-month deficit to US$25.8 billion, or 1.5% of GDP.

“The strong currency appreciation in March suggests substantial investment inflows but may also have encouraged companies to accelerate the remittance of earnings and dividends,” they said.

The January unemployment rate will be updated near the end of the week. “We estimate that the rate rebounded in January to 11.4%,” Bloomberg economists said.

It would be significantly better than last year’s 14.6% but still well above the estimated natural unemployment rate of around 8.5% and 9.5%.

Total labor income is likely to fall by 1.3% from February 2020 in real terms.

Two more indicators are expected for the same day: the primary budget balance and public debt.

The primary sector should show a moderate deficit in February of R$14 billion, and they expect the 12-month primary surplus to be maintained at around 1.2% of GDP. The nominal deficit, which includes interest payments on public debt, would likely increase to 3.9% of GDP from 3.6% in January.

The effect of a strong real on the local currency value of external debt and international reserves could reduce gross public debt to 79.2% of GDP in February and net public sector debt to 57.1% of GDP.

At the end of the week, data on industrial activity will be released, which is expected to show an increase of 0.4% in February compared to the previous month, but a 3.8% drop compared to last year.

Also, the March trade balance is expected to show a “huge surplus” due to the Russian military operation in Ukraine.

Partial data show that commodity exports increased, partly due to higher prices. The result would bring the 12-month trade surplus to US$66.6 billion.

ARGENTINA

The economic activity index for January will be released on Tuesday. After months of strong year-on-year growth, Argentina’s economy could experience widespread weakness in the first month of the year. The indicator is expected to show a contraction of 1.4% compared to the previous month.

Industrial production is expected to fall by 5.5% and construction by 3.9%. Meanwhile, agricultural exports are expected to show a loss of 32.9% compared to the previous year, once adjusted for price changes.

The decrease in mobility in the first month of the year, due to the increase in cases of the Covid-19 omicron variant, caused services to lose strength.

If confirmed, the result would bring the three-month average economic activity to a gain of 1.5% over the previous period and 6.5% over the previous year.

CHILE

Dupita and Hernandez anticipate that the central bank will raise its benchmark rate by 150 basis points to 7% on March 29, and policymakers could keep the door open for more hikes.

“High inflation, persistent price pressures, and rising inflation expectations argue for maintaining the hawkish bias,” they said.

It will be the first meeting since board members Rosanna Costa and Pablo García took over as governor and deputy governor, changes made by former president Sebastián Piñera. President Gabriel Boric still has a place to fill.

The quarterly inflation report will be delivered a day later, with updated growth and inflation forecasts and a monetary policy outlook.

“We expect the projections to maintain a similar trend to December but show higher growth and inflation levels. The monetary policy outlook is likely to require tighter conditions than previously anticipated,” Bloomberg economists noted.

According to the central bank’s forecasts, activity will gradually slow by late 2022 or early 2023 after a sharp increase in the third quarter of 2021.

The central bank had said its forecasts were consistent with tight monetary conditions, and the policy rate could rise to 5.5% or 6.0% by the end of the tightening cycle.

On Thursday, the Chilean government will share the achieved level of February retail sales.

Dupita and Hernandez project an annual increase of 11.2% but a monthly drop of 1.4%. “Our forecast implies a steeper decline in February. The result would be in line with higher interest rates, tighter fiscal policy, and tapering stimulus measures,” they said.

Vehicle sales fell as well as consumer goods imports and the consumer confidence index.

The new industrial production data will be released on the same day, which probably fell by 1.5% in February compared to the previous year. It would be the fourth consecutive setback.

This data supports expectations that growth will slow sharply in 2022 due to the tapering of stimulus measures.

Mining remains below its pre-pandemic level as trade disruptions and political uncertainty remain a drag. Manufacturing, meanwhile, would hold steady in February; this sector is already above its pre-Covid-19 outbreak level but has lost momentum since June.

Friday will confirm whether economic activity rose 5.5% in February from a year earlier.

Trade, which has been falling since August, is expected to register a 3.2% drop in January. Meanwhile, construction is expected to fall by 3.8%. On the other hand, services would rise 1.3% after advancing 1.4% in December and 2% in November.

COLOMBIA

Bloomberg economists anticipate that the central bank will increase its rate by 150 points to 5.5%.

Interest rates in the country remain low and consistent with expansionary monetary conditions, suggesting there is room for further hikes, according to Dupita and Hernandez.

The central bank raised the policy rate by 100 basis points to 4% in January, while inflation rose to 8.0% in February from 6.94% in the first month of the year.

In parallel, GDP advanced 4.3% in the fourth quarter from the previous quarter. GDP has performed stronger than the central bank’s projections, so the negative output is expected to decline rapidly during the year’s first half.

PERU

Finally, the Andean country will deliver its inflation data with a possible increase to 6.22% from 6.15% in February, with core inflation driving most of the advance.

Food and energy prices are likely to extend their upward trend, in line with higher global commodity prices.

Pressure from cumulative currency depreciation, price indexation, and supply shortages would be behind the advance.

With information from Bloomberg Línea

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