In addition to their regular forecasts for the major economic indicators (in February for Latin American Consensus Forecasts and in July for the Consensus Forecasts – G7 and Western Europe and Asia Pacific Consensus Forecasts countries), we survey our panelists for their qualitative evaluations of economic policy. The balance between current monetary and fiscal policy is assessed, as are panellists’ views regarding the likely and recommended direction of policy over the next twelve months.
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Our survey for Economic Policy Evaluation covers each of the countries listed above. The data below sets out the consensus responses for two of the Latin American economies, Argentina and Brazil, along with text commentary taken from our February 2019 survey below. To view a sample issue of Latin American Consensus Forecasts please click below.
High interest rates in Argentina, which were hiked sharply last year to support a tumbling peso, are finally coming down amid renewed investor confidence. The downward movement in the Leliq rate comes on the back of a rebound in the peso and a drop in sovereign risk premium. Although the country is still expected to contract for a second straight year in 2019, a more stable exchange rate, coupled with the fact that rampant inflation has stabilized, is helping to buoy confidence. That said, this year will no doubt remain challenging for the government as President Macri is attempting to keep a lid on inflation and bring an end to the recession, while at the same time eyeing a re-election bid later in the year. Tough austerity measures, which came as part of a IMF-backed rescue package last year, have already sent his popularity plummeting. The government’s commitment to achieving a balanced budget in 2019 will mean that significant fiscal tightening will remain in place this year. Just over half the Argentine panel thinks that current fiscal policy is about right, while 33% believes that it is too restrictive. 42% of respondents hold the view that fiscal policy should and will be tighter this year.
Although interest rates have tumbled since hitting their peak of 14.25% in July 2015, and have remained at a record-low of 6.50% since March 2018, growth in the Brazilian economy has remained largely subdued in the past two years. A slowing global economy, coupled with cooling inflationary pressures, kept the central bank on the sidelines at the last monetary meeting. While the majority of our panel (73%) believes that current monetary policy is about right, a minority still believes that it is too restrictive and are of the opinion that it should be loosened in the next twelve months. Much will depend on the performance of the economy over the coming year, however, particularly the progress of the government’s reform agenda. Tackling soaring pension spending is seen as an essential part of the fiscal consolidation process, which is necessary to keep on top of rising debt levels and help rekindle growth. Underscoring the belief that the government will achieve some success with its pension reform bill, just over 80% of the panel believe that fiscal policy will become tighter over the coming year.
A portion of text from Latin American Consensus Forecasts, February 18, 2019.