Slowing Growth In LatAm Conducive To Rate Cuts In Q423

• Expected economic activity prints in Latin American (LATAM) countries give a better picture of regional growth as well as the timing and pace of interest rate cuts. 
• For Colombia, high-frequency data (industrial production and real retail sales growth remained in negative territory) suggesting that the economy would have likely weakened significantly in August – possibly falling into contraction. This supports Fitch’s view that the central bank is likely to start its rate-cutting cycle in its next meeting at the end of October.
• Peru is likely to see continued weakness in H223 due to the effects of El Nino on fishing and agricultural output as well as weak external demand for copper, their main commodity export. Given this, Fitch also expects that Peru’s central bank will continue with its rate-cutting cycle.
• For Mexico, industrial activity remained strong in August, with output rising by 0.3% m-o-m relative to the 0.5% expansion seen in July. This was enough to push the y-o-y rate up to a nine-month high of 5.2%. In line with Fitch’s expectations, growth was driven by strength in the construction sector, while activity in the manufacturing sector eased somewhat. Given this, Fitch maintains the view that cuts will not materialise until mid-2024, largely owing to the resilience of the Mexican economy which will cause price growth to remain sticky.
• Finally, while Brazil has continued to beat expectations, the effect of high credit costs is likely to weaken this resilience. That said Fitch maintains its view that the bank will continue with its cautious rate-cutting cycle through 2023 into 2024.
• Overall, economic activity is expected to vary across LATAM countries which could have the effect of varying interest rate projections for 2023 and 2024.

(Source: Fitch Solutions)