Economic Consensus Forecast Latin America Latin America In 2021, the regional economy should rebound from last year’s Covid-19-induced slump...

Economic Consensus Forecast Latin America

Economic Consensus Forecast Latin America

Latin America
In 2021, the regional economy should rebound from last year’s Covid-19-induced slump. However, still-tight containment measures due to the elevated number of new infections will constrain the pace of recovery. Moreover, sluggish vaccine rollouts, worsening public finances, high unemployment rates and social and political turbulence pose downside risks. 

Regional inflation jumped to 7.7% in March (February: 7.0%), the highest reading since January 2020, on mounting price pressures in heavyweights Argentina, Brazil and Mexico. Inflation should gain speed this year, fueled by economic recoveries and loose monetary policy stances in the region. However, still-large output gaps should temper upward price pressures.

This year, the economy should recover some of 2020’s Covid19-induced losses, as both domestic and external demand revive amid the gradual removal of restrictions. However, elevated inflation, currency controls and policy uncertainty will slow the pace of recovery, while protracted debt renegotiations and pandemic-related risks cloud the outlook.

Argentina Inflation
Inflation increased to 42.6% in March from February’s 40.7%, logging the highest print since June 2020. Meanwhile, March’s month-on-month increase in consumer prices was the fastest in 18 months. Going forward, inflation should gain further speed due to the monetary financing of the fiscal deficit through a sustained expansion of the monetary base.

The economy is expected to rebound this year on the back of reviving domestic and external demand. Risks are skewed to the downside, however, amid mounting public debt levels, strained government finances and a faltering reform agenda. Uncertainty over further virus flare-ups and the speed of vaccine deployment clouds the outlook further.

Brazil Inflation
Inflation jumped to 6.1% in March from February’s 5.2%, marking the highest print since December 2016 and climbing even further above the Central Bank’s target rate of 3.75% for end-2021. Although price pressures are expected to moderate from current levels later this year amid labor market slack and a large output gap, rising fuel and food prices pose upside risks.

The economy should rebound robustly this year, as the gradual removal of restrictions domestically and abroad amid supportive fiscal and monetary policies fuels domestic and external demand. That said, uncertainty surrounding the evolution of the pandemic, as well as the constitutional process and November’s general elections, poses a downside risk.

Chile Inflation
Inflation came in at February’s 2.9% in March. Meanwhile, core inflation rose to 2.6% from 2.4% in February. This year, inflation should hover around its current levels, fueled by recovering activity and a loose monetary policy stance but tempered by a still-sizable output gap.

The economy is seen growing solidly this year on the back of firming domestic activity and a recovering external sector, also supported by higher oil prices relative to last year. However, soaring new Covid-19 infections in April and a still-low vaccination rate threaten tighter restrictions ahead, posing a key downside risk.

Colombia Inflation
Inflation edged down to 1.5% in March from February’s 1.6%, moving further below the lower bound of the Central Bank’s target range of 2.0–4.0%. Looking ahead, price pressures are expected to intensify as domestic activity gradually recovers, with inflation ending the year closer to the midpoint of the Central Bank’s target band.

Activity is poised to rebound in 2021 amid stronger remittances and as improving foreign demand—particularly from the U.S.— buoys exports. However, weak fiscal support will likely weigh on domestic demand. The still-raging pandemic, a slow vaccine rollout and an uncertain business environment cloud the outlook further.

Mexico Inflation
Inflation climbed to 4.7% in March from 3.8% in February, moving above Banxico’s 2.0–4.0% target range and marking an over two-year high. Inflation is seen above-target in Q2 on higher energy prices, before dipping somewhat towards the end of the year.

The economy is projected to rebound at the fastest pace in the region this year, with higher consumer and capital spending driving domestic demand and improving foreign demand supporting exports. However, a relatively slow vaccine rollout clouds the outlook, while mounting political unrest could suppress business and consumer confidence in the first half of the year.

Peru Inflation 
Inflation inched up to 2.6% in March from 2.4% in February, moving further towards the upper bound of the Central Bank’s 1.0–3.0% target range. Inflation is forecast to fall from its current level this year as easing supply chain disruptions and a projected strengthening of the sol outweigh higher household spending and improving labor market dynamics.

FocusEconomics Consensus Forecast - LatinFocus April 2021

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