External Headwinds Growing For Latin America

• Weakening risk sentiment in global financial markets presents a growing challenge to Latin America and will likely contribute to pressure for higher interest rates. 
• Concerns over the Chinese real estate developer Evergrande's solvency are threatening the Chinese real estate market and in turn generating risks to emerging markets (EMs). 
• Adding to China's challenges, a coal supply crunch is creating acute power shortages that pose additional downside risks to Chinese economic activity. At the same time, US markets softened over the last week in part over a volatile political environment in which the outlook for raising the federal debt limit is unclear and highly risky. 
• The upshot is that Latin America's currencies have weakened and debt costs have risen, which may add to pressures on central bankers in the region to tighten monetary policy, all the while generating headwinds to economic activity. 
• The Bank of Jamaica like other central banks in the region has begun tightening monetary policy to curb rising inflation. It is also likely to generate headwinds to economic activity by raising the cost of borrowing for businesses and consumers.

(Source: Fitch Solutions)