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  • Emerging Markets Debt Daily

    Mexico’s Growth Momentum Falters

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    February 24, 2019

    Mexico’s growth momentum continued to soften in Q4, with the economic activity proxy falling to a mere 0.04% year-on-year in December. Weakening growth may help to prevent the deterioration of the current accountbalance—the deficit narrowed more than the consensus projection in Q4 (USD3.42B). However, it poses additional challenges for Mexico’s fiscal performance, which is already expected to come under pressure as the rescue plan for the state-owned oil company, Pemex, continues to grow in size.

    Brazil’s external balance remained in a good shape in January, despite the current account deficit’s widening to USD6.55B on the back of seasonal factors. The 12-month running current account gap stayed below 1% of gross domestic product, and it was more than fully financed by direct inflows (see chart below). A big portion of the current account’s improvement in past quarters was due to the cyclical weakness of domestic demand—hence, the ongoing focus on the government’s ability to implement social security reform that would put external adjustment on a more sustainable basis.

    Chinese equities staged a massive rally, and the renminbi was trading 37bps stronger (according to Bloomberg LP, as of 10:14 a.m. ET) following reports that U.S. President Donald Trump postponed the March 1 deadline for hiking tariffs on USD200B of Chinese imports after the two sides made progress on several controversial issues (like intellectual property). The base case for the market seems to be that a meeting between President Trump and President Xi Jinping will produce a trade deal, and this was fully reflected in the morning price action.


    Chart at a Glance

    Brazil Basic Balance

    Source: VanEck; Bloomberg LP

    1Current account is a record of a country’s transactions with the rest of the world, based on its net trade in goods and services, net earnings on cross-border investments, and net transfer payments.


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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