A soft start to 2018

The latest activity data suggest that Latin America’s economic recovery paused for breath in the first quarter of 2018. Our GDP Tracker points to growth of 2.5% y/y, unchanged from Q4. Activity data from Brazil have been soft, and Argentina’s economy appears to have slowed sharply. However, figures from elsewhere have been better. Growth in Mexico probably eased a touch in Q1 but remained relatively robust. And recoveries in the Andean economies of Chile, Peru and Colombia strengthened. Despite the disappointing start to the year, we expect the region’s economic recovery to resume in the coming quarters. Meanwhile, the incoming inflation data have generally surprised on the downside, which is likely to give central banks in Brazil and Colombia cover to extend easing cycles in the coming weeks. And the recent sharp fall in Mexican inflation supports our view that the next move in interest rates will be down – albeit not until later in the year.