Sunday, September 23 2018 | ASIA TODAY INTERNATIONAL - Reporting the Business that Matters in Asia
Updated: 1 hour 57 min ago
Latin America will grow 1.3% in 2018 and 2.1% in 2019, with considerable heterogeneity across countries. These forecasts are lower than the previous ones, mainly due to the revision of growth in Argentina and Brazil. This adjustment in the two countries could not be compensated by the upward revisions of growth in Mexico, Colombia, Peru and Paraguay.
The economy is starting to settle into improved performance, with positive surprises. Political tension has reduced, business confidence has improved, and private expenditure shows a good performance. As a result, we expect output to grow by 3.6% this year and 3.9% next, more than we forecast in our last report.
Confidence seem to level off pointing to a steady growth in 2H18. The 1Q18 slowdown in activity added to increasing uncertainty and higher commodity prices lead us to slash GDP growth forecasts to 2% and 1.7% in 2018-19. Higher oil prices and a weaker euro increase our headline inflation forecasts to 1.7% and 1.8% for this year and next. Trade war risks have intensified.
The Central Bank (CBRT) decided to maintain the policy rate unchanged (17.75%) despite the market expectations (including ours) of 100 bps tightening. We expect the CBRT will have to tight later, maybe tighter depending on the degree of fiscal consolidation and currency volatility.
Over the past two years movements in the peso’s rate of exchange against the dollar have tended to follow more than anything the prospects for the North American Free Trade Agreement (NAFTA) and trade relations between Mexico and the United States in general.
The GDP growth forecasts for the Spanish economy stay at 2.9% for 2018 and 2.5% in 2019. However, the composition of demand is less favourable than that observed three months ago. In addition, the probability of materializing some risks that may result in less dynamic scenarios has increased.
One of the most important public services provided by the State is to insure against risks. Access to education, health care or unemployment benefits means that, during a recession, the most vulnerable households do not reduce their consumption as much. In addition to giving people stability, fiscal policy also allows smoothing of the economic cycle.
Highlights: FSB issues report on crypto-assets monitoring. EC urges all parties to prepare for Brexit. ECB issues opinion on proposal regarding NPEs. EBA issues guidelines to strengthen the Pillar 2 framework, on fraud reporting under PSD2 and publishes its risk dashboard. ESMA issues final ITS and RTS regarding STS securitisation regulation.
Q2 GDP moderated to 6.7% y/y amid the trade war and domestic deleveraging, down from the previous reading at 6.8% y/y and in line with the consensus. In particular, outturns of trade, industrial production and investment are below the market expectations and the previous readings. Headwinds are from domestic deleveraging initiatives and trade war with the US externally.
Global growth remains steady and our World GDP projections remain unchanged at 3.8% for both 2018-19, but with more divergence across areas. The US continues strong and China should decelerate as expected, but we have revised down growth for the Eurozone. Risks have increased and above all, protectionism could trim growth in the quarters ahead.
Balance of risks of the Financial System Stability Council (CESF). Value of cars bought on credit shifted towards higher prices. The value of production of construction companies fell by 2.6% in the first four months of 2018. Reduced concerns about global trade tensions give respite to domestic assets in the second half of June.
In the 2Q18 global investment funds registered outflows for the first time since 2016. The reversal –driven by tighter global financing and growing concerns on trade- has remained mild and controlled thanks to solid economic growth. It was especially strong in EM. Investor sentiment has veered from risk-on to risk-off mood and we project outflows from EM to continue.
The preferred candidate of Mexicans abroad was Andrés Manuel López Obrador, who gained 63,863 votes, 64.86% of the total, followed by: Ricardo Anaya Cortes with 26,344 votes (26.75%), José Antonio Meade Kuribreña with 4,613 votes (4.28%) and Jaime Heliodoro Rodríguez Calderón with 1,868 votes (1.90%).
The IP grew by 6.4% yoy in calendar adjusted terms in May, above the market consensus of 5.5%. Despite the still positive trend, the highest monthly deterioration of 1.6% since September 2016 signals the increasing likelihood of a more rapid adjustment than expected. We expect GDP growth to come down to 3.8% in 2018.