Wednesday, January 21, 2009
Friday, January 16, 2009
Mexico central bank cuts lending rate to 7.75 pct
Mexico's central bank cut interest rates for the first time since 2006 on Friday to boost the country's slowing economy as it inches toward recession. The bank lowered its benchmark lending rate 50 basis points to 7.75 percent. It had resisted changing its rate since August in an effort to balance slowing growth and rising inflation, which reached a seven-year high of 6.5 percent in 2008.
Price gains should start slowing this month, though, as the economic downturn deepens and Mexico's government freezes gasoline prices and slashes electricity and natural gas costs, the bank said in a statement announcing its decision.
Growth slowed to a projected 1.8 percent in 2008, and central bank president Guillermo Ortiz has suggested it could be negative this year
Price gains should start slowing this month, though, as the economic downturn deepens and Mexico's government freezes gasoline prices and slashes electricity and natural gas costs, the bank said in a statement announcing its decision.
Growth slowed to a projected 1.8 percent in 2008, and central bank president Guillermo Ortiz has suggested it could be negative this year
Tuesday, January 13, 2009
PERU—The Week Ahead.
Slow GDP Growth in November
Economic activity likely expanded 7% y/y in November (8.6% y/y in Nov 07 and 9.3% y/y 3MMA). Although domestic demand probably continued increasing at a strong pace, it should signal a deceleration (13.1% y/y vs. 13.4% y/y 3MMA). Except for mining (12.4% y/y vs. 7.1% y/y 3MMA), the other GDP components with the heavy weights in the index should reflect a slowing trend. On the external front, total trade (exports plus imports) declined rapidly (-0.5% y/y vs. 22.3% y/y 3MMA), indicating continuing decelerations in external (exports -12.1% y/y vs. 7.2% y/y 3MMA) and domestic demand (imports 15% y/y vs. 43% y/y 3MMA). Finally, a calendar effect due to the APEC Summit should have exacerbated the ongoing deceleration. During the first 11M08, economic activity likely expanded 9.7% y/y (8.7% y/y in 11M07). The Bloomberg consensus anticipates GDP growth to be 6.5% y/y.
Economic activity likely expanded 7% y/y in November (8.6% y/y in Nov 07 and 9.3% y/y 3MMA). Although domestic demand probably continued increasing at a strong pace, it should signal a deceleration (13.1% y/y vs. 13.4% y/y 3MMA). Except for mining (12.4% y/y vs. 7.1% y/y 3MMA), the other GDP components with the heavy weights in the index should reflect a slowing trend. On the external front, total trade (exports plus imports) declined rapidly (-0.5% y/y vs. 22.3% y/y 3MMA), indicating continuing decelerations in external (exports -12.1% y/y vs. 7.2% y/y 3MMA) and domestic demand (imports 15% y/y vs. 43% y/y 3MMA). Finally, a calendar effect due to the APEC Summit should have exacerbated the ongoing deceleration. During the first 11M08, economic activity likely expanded 9.7% y/y (8.7% y/y in 11M07). The Bloomberg consensus anticipates GDP growth to be 6.5% y/y.
ARGENTINA—The Week Ahead.
Inflation Likely Continued Decelerating in December
Headline inflation, as reported by INDEC, likely increased by 0.52% m/m in December (0.93% m/m in Dec 07). High food (seasonal factors), housing (higher gas tariffs), leisure (vacation), and others likely kept headline inflation under pressure; however, the overall inflation trend is likely to continue normalizing in a year-over-year basis due to slower domestic demand and lower commodity prices. In 2008, headline inflation likely increased 7.43% y/y (8.5% y/y in 2007). The central bank consensus expects inflation to be about 0.6% m/m.
Headline inflation, as reported by INDEC, likely increased by 0.52% m/m in December (0.93% m/m in Dec 07). High food (seasonal factors), housing (higher gas tariffs), leisure (vacation), and others likely kept headline inflation under pressure; however, the overall inflation trend is likely to continue normalizing in a year-over-year basis due to slower domestic demand and lower commodity prices. In 2008, headline inflation likely increased 7.43% y/y (8.5% y/y in 2007). The central bank consensus expects inflation to be about 0.6% m/m.
MEXICO—The Week Ahead
MEXICO—The Week Ahead. Slowing Investment and Contracting Economic Activity in October, Declining Industrial Production in November. Banxico will likely Cut the Monetary Policy Rate by 50bps to 7.75%
This week's data should continue showing the negative impact of the ongoing deterioration of the global and local growth outlook, stricter credit conditions and poorer consumer and business confidence on economic growth indicators. In this context, together with recent government actions (fiscal stimulus package and freezing of gasoline prices), and public comments from top officials on growth and inflation, it is highly likely that the central bank initiates the easing cycle this week.
Gross fixed investment (GFI) likely increased by 3.2% y/y in October (7.7% y/y in Oct 07 and 7.9% y/y 3MMA) mainly because of a sharp deceleration in capital good imports (13.4% y/y vs. 25.5% y/y 3MMA) and construction activity (-2.9% y/y vs. -1.2% y/y 3MMA). Moreover, sluggish growth in investment in domestic machinery and equipment (3.4% y/y vs. 11.1% y/y 3MMA) likely added downward pressure to GFI. Therefore, investment probably expanded by 6% YTD during the Jan-Oct 08 period vs. 6.1% YTD in 10M07. The Bloomberg consensus expects investment to expand by 4.3% y/y.
Moreover, economic activity, as measured by IGAE, likely declined by 0.7% y/y in October (5% in Oct 07 and 1.6% y/y 3MMA). A sharp contraction in industrial production (-2.7% y/y), along with worsening consumer spending indicators (waning consumer confidence, raising unemployment, elevated inflation and declining retail sales) likely dragged economic activity into negative territory. Moreover, a rapid deceleration in the external sector (exports plus imports: -1.2% y/y vs. +15% y/y 3MMA) and slowing lending growth should have added downward pressure to overall activity. Consequently, economic activity probably expanded by 2% YTD (Jan-Oct 08) vs. 4.1% YTD during the same period in 2007. The Bloomberg consensus expects IGAE to decline by 0.2% y/y.
In terms of monetary policy, Banxico will likely cut the monetary policy rate by 50bps to 7.75% (60% probability) because economic activity is decelerating sharply and inflation pressures and expectations will likely dissipate in the very near term. The other option is that the committee takes a more conservative approach and cuts rates by 25bps to 8%. Overall, recent economic activity data indicates that growth is under heavy downside pressure as a result of contracting external demand and the ongoing decline of domestic demand conditions. Moreover, lower commodity prices and the widening of the output gap, along with the government announcement that it will freeze gasoline prices, should bring inflation closer to the target by year end. However, inflation risks associated with the impact of a further weakening of the local currency plays in favor of the more conservative approach. Finally, recent actions (fiscal stimulus package) and comments from President Calderon, Central Bank Governor Ortiz, and Finance Minister Carstens, indicate a concern for economic growth and improved view on inflation. The Bloomberg consensus expects Banxico to cut the reference rate by 25bps to 8%.
Finally, industrial production probably contracted by 2.7% y/y in November (2.2% y/y in Nov 07 and -2.2% y/y 3MMA). Declines in US manufacturing (-7.4% y/y), imports of intermediate goods (-9.2% y/y) and auto production (-2.8% y/y) should have further deteriorated manufacturing output (-3.4% y/y), while a contraction in oil production should have kept mining output in negative territory (-4.2% y/y). Furthermore, construction likely continued falling but at a slower pace (-0.5% y/y), and utilities likely remained sluggish (1.1% y/y). In the first 11M08 period, industrial output likely contracted by 0.2% YTD (1.8% YTD in 11M07). The Bloomberg consensus expects industrial production to decline by 3.3% y/y.
This week's data should continue showing the negative impact of the ongoing deterioration of the global and local growth outlook, stricter credit conditions and poorer consumer and business confidence on economic growth indicators. In this context, together with recent government actions (fiscal stimulus package and freezing of gasoline prices), and public comments from top officials on growth and inflation, it is highly likely that the central bank initiates the easing cycle this week.
Gross fixed investment (GFI) likely increased by 3.2% y/y in October (7.7% y/y in Oct 07 and 7.9% y/y 3MMA) mainly because of a sharp deceleration in capital good imports (13.4% y/y vs. 25.5% y/y 3MMA) and construction activity (-2.9% y/y vs. -1.2% y/y 3MMA). Moreover, sluggish growth in investment in domestic machinery and equipment (3.4% y/y vs. 11.1% y/y 3MMA) likely added downward pressure to GFI. Therefore, investment probably expanded by 6% YTD during the Jan-Oct 08 period vs. 6.1% YTD in 10M07. The Bloomberg consensus expects investment to expand by 4.3% y/y.
Moreover, economic activity, as measured by IGAE, likely declined by 0.7% y/y in October (5% in Oct 07 and 1.6% y/y 3MMA). A sharp contraction in industrial production (-2.7% y/y), along with worsening consumer spending indicators (waning consumer confidence, raising unemployment, elevated inflation and declining retail sales) likely dragged economic activity into negative territory. Moreover, a rapid deceleration in the external sector (exports plus imports: -1.2% y/y vs. +15% y/y 3MMA) and slowing lending growth should have added downward pressure to overall activity. Consequently, economic activity probably expanded by 2% YTD (Jan-Oct 08) vs. 4.1% YTD during the same period in 2007. The Bloomberg consensus expects IGAE to decline by 0.2% y/y.
In terms of monetary policy, Banxico will likely cut the monetary policy rate by 50bps to 7.75% (60% probability) because economic activity is decelerating sharply and inflation pressures and expectations will likely dissipate in the very near term. The other option is that the committee takes a more conservative approach and cuts rates by 25bps to 8%. Overall, recent economic activity data indicates that growth is under heavy downside pressure as a result of contracting external demand and the ongoing decline of domestic demand conditions. Moreover, lower commodity prices and the widening of the output gap, along with the government announcement that it will freeze gasoline prices, should bring inflation closer to the target by year end. However, inflation risks associated with the impact of a further weakening of the local currency plays in favor of the more conservative approach. Finally, recent actions (fiscal stimulus package) and comments from President Calderon, Central Bank Governor Ortiz, and Finance Minister Carstens, indicate a concern for economic growth and improved view on inflation. The Bloomberg consensus expects Banxico to cut the reference rate by 25bps to 8%.
Finally, industrial production probably contracted by 2.7% y/y in November (2.2% y/y in Nov 07 and -2.2% y/y 3MMA). Declines in US manufacturing (-7.4% y/y), imports of intermediate goods (-9.2% y/y) and auto production (-2.8% y/y) should have further deteriorated manufacturing output (-3.4% y/y), while a contraction in oil production should have kept mining output in negative territory (-4.2% y/y). Furthermore, construction likely continued falling but at a slower pace (-0.5% y/y), and utilities likely remained sluggish (1.1% y/y). In the first 11M08 period, industrial output likely contracted by 0.2% YTD (1.8% YTD in 11M07). The Bloomberg consensus expects industrial production to decline by 3.3% y/y.
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