The Week Ahead: All Eyes On Manufacturing As 2013 Draws To A Close

Out of all the data releases that we watched for over the previous week, Brazil's disappointing budget numbers for November stand out from the rest, as they serve as a stark reminder of the country's deteriorating fiscal credentials. Already facing the prospect of a ratings downgrade, the recording of a monthly nominal budget deficit is likely to further rattle market sentiment, as consensus expectations were for a sizeable surplus in November. Indeed, Brazil's nominal budget balance recorded a BRL0.2bn deficit, when Bloomberg survey estimates pointed to a BRL12.1bn surplus. Faced with notable macroeconomic challenges and what is likely to be a far more contested election than initially anticipated, we see little to suggest a turning point in fiscal policy and therefore, barring a sharp increase in revenues, believe that fiscal deterioration in Brazil is likely to persist in 2014.

In the week ahead, we will be watching manufacturing data in the region. Brazil, Chile and Mexico will publish manufacturing data, which in the case of the former will likely confirm the trend of a disappointing manufacturing sector performance, in contrast to what has been a robust year for the services sector in Brazil. Meanwhile, we await further evidence that Mexico's manufacturing sector is staging a nascent recovery, which would reaffirm our positive outlook on the economy as a whole.

Previous Week's Highlights…

Out of all the data releases that we watched for over the previous week, Brazil's disappointing budget numbers for November stand out from the rest, as they serve as a stark reminder of the country's deteriorating fiscal credentials. Already facing the prospect of a ratings downgrade, the recording of a monthly nominal budget deficit is likely to further rattle market sentiment, as consensus expectations were for a sizeable surplus in November. Indeed, Brazil's nominal budget balance recorded a BRL0.2bn deficit, when Bloomberg survey estimates pointed to a BRL12.1bn surplus. Faced with notable macroeconomic challenges and what is likely to be a far more contested election than initially anticipated, we see little to suggest a turning point in fiscal policy and therefore, barring a sharp increase in revenues, believe that fiscal deterioration in Brazil is likely to persist in 2014.

In the week ahead, we will be watching manufacturing data in the region. Brazil, Chile and Mexico will publish manufacturing data, which in the case of the former will likely confirm the trend of a disappointing manufacturing sector performance, in contrast to what has been a robust year for the services sector in Brazil. Meanwhile, we await further evidence that Mexico's manufacturing sector is staging a nascent recovery, which would reaffirm our positive outlook on the economy as a whole.

Previous Week's Highlights…

Budget data for Brazil fell short of expectations in November, as the release of fiscal data on December 27 showed. Despite an improvement on the previous month, when Brazil recorded a nominal budget deficit of BRL11.5bn, the BRL0.2bn deficit registered in November falls significantly short of survey expectations for a BRL12.1bn surplus. With the primary surplus consistently falling short of government estimates, we continue to express our negative outlook on Brazil's fiscal position, forecasting a nominal deficit of 2.7% of GDP in 2013 and 2014.

Colombia released current account balance data for Q3 on December 26, confirming our expectations of a deeper deficit than in the previous quarter on the back of labour disruptions, which affected export volumes and a recent uptick in imports. Indeed, the US$3.58bn shortfall was higher than anticipated in a Bloomberg survey (US$2.95bn), and marked a substantial widening of the deficit from Q2 when the balance recorded a US$2.51bn shortfall.

Bi-weekly consumer price inflation in Mexico accelerated to 0.40% in the first half of December, up from 0.02% in the previous reading. This chimes with our expectations for faster CPI growth in Mexico, driven by rising core prices, which grew 0.30% in the two weeks to December 15.

What We Are Watching In The Week Ahead…

Brazil

(January 2) Manufacturing PMI: The release of the purchasing managers' index in manufacturing for December could further reaffirm our view that Brazil's manufacturing sector will continue to diverge from the stronger growth trajectory seen in the services sector in 2013. Manufacturing PMI recorded a moderate contraction in November, with a reading of 49.7 (a value below 50 indicates a contraction), bringing a largely disappointing year for this sector to a close.

(January 2) Trade Balance: Brazil is scheduled to release its monthly trade in goods balance for December, with survey estimates putting the balance at US$1.35bn, a more moderate surplus than recorded in November (US$1.74bn). We note that even with a unexpected deterioration in the trade balance in December, our full-year deficit forecast of US$2.9.0bn will be missed at this stage, indicating a less pronounced widening of the current account deficit than we had been forecasting in 2013. We currently project a current account shortfall of 4.15% of GDP in 2013.

Chile

(December 30) Retail Sales: Chile will release November retail sales data on Monday. While retail sales have remained robust in recent months, coming in at 13.4% y-o-y most recently in October, we expect sales figures to begin trending down heading into 2014 as domestic demand weakens.

(December 30) Manufacturing Index: Chile will announce November's manufacturing index reading on Monday, with Bloomberg consensus calling for a 1.5% y-o-y contraction in output, following a 3.2% y-o-y drop in October.

(December 30) Unemployment: Chile is scheduled to release November's national unemployment rate on Monday. While unemployment in Chile has remained near historic lows this year, coming in at 5.8% in October, we forecast that unemployment will rise to 6.5% by end-2014 due to a deceleration in economic growth that will negatively affect the labour market.

Colombia

(December 30) Unemployment: Colombia is due to release unemployment data for November. The national unemployment rate previously reached 7.8%, and we expect a continued tightening of Colombia's labour market. We forecast the unemployment rate to reach 7.7% by year-end, projecting a continued decline towards 7.4% by end-2014.

Ecuador

(January 2) GDP: Ecuador will publish Q313 GDP data on Thursday, which we expect will show that the economy grew slightly faster in the third quarter of 2013 in real terms than H113's 3.5% y-o-y rate. This view is underpinned by the Sacha oil field having come online over the summer, which has moderately boosted oil production and exports in recent months.

Jamaica

(December 30) GDP: Jamaica's national statistical office is due to release Q3 GDP data on Monday, December 30. In year-on-year terms, Jamaica's GDP in constant, non-seasonally adjusted prices, recorded six consecutive quarters of negative growth, with the economy contracting 0.1% y-o-y in Q2. We currently forecast a full-year growth rate of 0.8% in real terms.

Mexico

(January 2) IMEF Manufacturing Index: We continue to anticipate more evidence of a recovery in Mexico's beleaguered manufacturing sector as 2013 draws to a close. Having seen only moderate expansion in November based on an IMEF Manufacturing Index reading of 50.1, the final reading for 2013 is expected to come in a 51.5, indicating a stronger expansion of the sector as a whole. This is in line with our view that stronger demand from the US and rising fixed investment into infrastructure will provide a tailwind for manufacturing in Mexico over the coming quarters.

Nicaragua

(December 30) GDP: Nicaragua will release Q313 GDP data on Monday. While real growth likely came in below 4.0% y-o-y in the third quarter of 2013 due to a decline in coffee exports, we believe that a modest uptick in coffee production, combined with stronger US demand for manufactured imports, will see headline growth in Nicaragua rise to 4.2% in 2014, from our forecast of 3.9% in 2013.

Paraguay

(December 31) Consumer Price Inflation: Paraguay will release its December inflation data on Tuesday. Inflation came in at 4.4% y-o-y in November, and we expect it will remain around current levels in December, in line with our 4.5% end-2013 inflation forecast. In 2014, we forecast a notable acceleration in headline inflation to 6.5% by year end, as accelerating credit growth and wage growth feed through to an uptick in price pressures.

Peru

(January 1) Consumer Price Inflation: Peru will publish its consumer price index for December on Tuesday. While inflation remained steady at 3.0% y-o-y in November, the same as in October, we expect price growth acceleration in December due to statistical base effects.

Trinidad & Tobago

(December 30) GDP: Trinidad & Tobago (T&T) will release its Q313 GDP data on Monday. Real GDP growth for Q213 in T&T came in at 2.1% y-o-y, up from 1.6% y-o-y in Q113, reinforcing our view that the country will continue to see stronger economic growth on the back of a moderate rise in non-energy output.

Uruguay

(January 2) Consumer Price Inflation: Uruguay is scheduled to release its consumer price index for December on Wednesday, and we expect it to show that price growth remains above the central bank's upper target of 6.0%, despite the bank's new plan to control inflation expectations by targeting lower monetary aggregate growth, rather than using a benchmark interest rate.

Latin America - Economic Data Releases (December 30 - January 3)
Date Country Indicator Period Survey Actual Prior
2-Jan-13 Argentina Government Tax Revenue, ARSmn Dec -- -- 73,600
30-Dec-13 Brazil Central Bank Weekly Economists Survey
1-Jan-14 Brazil Commodity Price Index MoM Dec -- -- 2.73%
1-Jan-14 Brazil Commodity Price Index YoY Dec -- -- 2.09%
2-Jan-14 Brazil FGV CPI IPC-S Dec-31 -- -- 0.66%
2-Jan-14 Brazil PMI Manufacturing Dec -- -- 49.7
2-Jan-14 Brazil Currency Flows Weekly
2-Jan-14 Brazil Trade Balance Monthly, US$mn Dec 1,350 -- 1,740
2-Jan-14 Brazil Exports Total, US$mn Dec -- -- 20,862
2-Jan-14 Brazil Imports Total, US$mn Dec -- -- 19,122
3-Jan-14 Brazil Vehicle Sales Fenabrave Dec -- -- 302,950
30-Dec-13 Chile Manufacturing Index YoY Nov -1.50% -- -3.20%
30-Dec-13 Chile Retail Sales YoY Nov 9% -- 13.40%
30-Dec-13 Chile Copper Production Total Nov -- -- 507,694
30-Dec-13 Chile Unemployment Rate Nov 5.80% -- 5.80%
30-Dec-13 Chile Central Bank Meeting Minutes
30-Dec-13 Colombia National Unemployment Rate Nov -- -- 7.80%
30-Dec-13 Colombia Urban Unemployment Rate Nov 8.60% -- 8.70%
31-Dec-13 Colombia Budget Balance, COPmn Nov -- -- -7,123,000
3-Jan-14 Colombia PPI MoM Dec -- -- -0.26%
3-Jan-14 Colombia PPI YoY Dec -- -- -1.33%
3-Jan-14 Colombia Colombia Monetary Policy Minutes
30-Dec-13 Dominican Republic Overnight Rate Dec-31 -- -- 6.25%
30-Dec-13 Dominican Republic GDP YTD YoY 3Q F -- -- 2.90%
2-Jan-14 Dominican Republic Gross Reserves, DOPmn Dec -- -- 3,852.7
2-Jan-14 Ecuador GDP YoY 3Q -- -- 3.50%
2-Jan-14 Ecuador GDP QoQ 3Q -- -- 1.20%
30-Dec-13 El Salvador Current Account Balance, US$mn 3Q -- -- -452.1
31-Dec-13 Guatemala Current Account Balance, US$mn 3Q -- -- -375.1
31-Dec-13 Guatemala GDP YoY 3Q -- -- 4.30%
2-Jan-14 Guatemala M2 Money Supply YoY Nov -- -- 9.80%
2-Jan-14 Guatemala Trade Balance, US$mn Nov -- -- -825
30-Dec-13 Jamaica GDP (YoY) NSA 3Q -- -- -0.10%
30-Dec-13 Jamaica GDP SA QoQ 3Q -- -- 1.50%
30-Dec-13 Jamaica Current Account Balance, US$mn 3Q -- -- -207.0
31-Dec-13 Jamaica Benchmark Interest Rate Dec -- -- 5.75%
30-Dec-13 Mexico Budget Balance YTD, MXNmn Nov -- -- -218,100
31-Dec-13 Mexico Net Outstanding Loans, MXNmn Nov -- -- 2,449,000
31-Dec-13 Mexico International Reserves Weekly, US$mn Dec-27 -- -- 176,554
2-Jan-14 Mexico Remittances Total, US$mn Nov 1,748.5 -- 1,853.1
2-Jan-14 Mexico IMEF Manufacturing Index SA Dec 51.5 -- 50.1
2-Jan-14 Mexico IMEF Non-Manufacturing Index SA Dec 51.1 -- 50.4
2-Jan-14 Mexico IMEF Manufacturing Index NSA Dec -- -- 50.7
2-Jan-14 Mexico IMEF Non-Manufacturing Index NSA Dec -- -- 51.3
30-Dec-13 Nicaragua GDP QoQ 3Q -- -- -0.90%
30-Dec-13 Nicaragua Current Account Balance, US$mn 3Q -- -- -374.2
30-Dec-13 Nicaragua GDP YoY 4Q -- -- 7.50%
31-Dec-13 Paraguay CPI MoM Dec -- -- 0.70%
31-Dec-13 Paraguay CPI YoY Dec -- -- 4.40%
1-Jan-14 Peru CPI MoM Dec 0.20% -- --
1-Jan-14 Peru CPI YoY Dec 2.90% -- --
1-Jan-14 Peru Wholesale Price Index MoM Dec -- -- --
30-Dec-13 Trinidad & Tobago GDP YoY 3Q -- -- 2.10%
31-Dec-13 Trinidad & Tobago CPI YoY Nov -- -- 2.70%
31-Dec-13 Trinidad & Tobago CPI MoM Nov -- -- 1.20%
30-Dec-13 Uruguay PPI MoM Dec -- -- -0.38%
30-Dec-13 Uruguay PPI YoY Dec -- -- 6.14%
31-Dec-13 Uruguay Budget Balance, UYUmn Nov -- -- 293.0
2-Jan-14 Uruguay Dec. Trade Balance
2-Jan-14 Uruguay Unemployment Rate Nov -- -- 6.40%
2-Jan-14 Uruguay CPI MoM Dec -- -- 0.20%
2-Jan-14 Uruguay CPI YoY Dec -- -- 8.51%
3-Jan-14 Venezuela Venezuela Crude Oil Basket Jan-03 -- -- --
Source: Bloomberg

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