LATIN AMERICAGOING TO THE POLLSMARCH 2018EMERGING MARKETS RESEARCH, LATAMMARCELO CARVALHO @MCarvalhoEcon LATAM MACROECONOMIC OUTLOOK: CONTENTSLatin America in the global context3Brazil: Election time14Mexico: Changing gears36Colombia: Growth drivers a precious commodity64Argentina: In recovery mode76Chile: Growth acceleration in the horizon83Detailed forecasts88Page2 GLOBAL: COMPOSITE LEADING INDICATOR (100=LONG-TERM AVG)Global expansionSource: OECD, BNP Paribas. 3 GLOBAL MONETARY POLICYGlobal monetary policy: gradual removal of accommodationFed Funds target rate and 2yr Treasury bond yields (%, a.r.)Source: ECB, FED, BoJ, Macrobond, BNP Paribas4 GLOBAL: HISTORICAL US DOLLAR CYCLESUS dollar cycles come in waves: we think the USD has peaked US Real effective exchange rate index (1973=100)Source: FED, Macrobond, BNP Paribas. Dotted line shows BNP Paribas forecast.901001101201301401501970197419781982198619901994199820022006201020142018REER, CPI based (1-year moving average)1973: BrettonWoods abandoned1981: Reaganpresident1985: Plaza accord2000: Tech crash1991: Gulf WarUS/EUR buy dollars2008: Financial crisis2017: America Firs t polic y5 GLOBAL: USD (NEER) AND COMMODITY PRICESA weaker USD tends to boost international commodity pricesSource: S&P, FED, Macrobond, BNP Paribas6 GLOBAL: COMMODITY PRICESLooking betterIMF non-fuel commodities price index (2005=100)Source: IMF, Macrobond, BNP Paribas. Dotted lines show IMF forecasts. 7 ArgentinaBangladeshBoliviaBrazilChileChinaColombiaIndiaIndonesiaIsraelMalaysiaMauritiusMexicoNigeriaPakistanPeruPhilippinesPolandQatarRomaniaRussian FederationSloveniaSouth AfricaTurkeyUkraineVietnam0%10%20%30%40%50%60%70%80%90%100%-8-6-4-202468Commodity exports dependencyCurrent account balance (% GDP)LATAM: COMMODITY EXPOSURE AND CURRENT ACCOUNT BALANCESCommodity prices (China, USD) and capital flows (USD, QE, risk appetite) matter for LatamSource: World bank. Ratios based on 2015 data (commodity exports dependency) and 2017 data (current account).Commodity prices(China,USD)Capital flows (USD, Global QE, risk appetite)8 Mostly easing in 2018LATAM: POLICY INTEREST RATESLatam: Policy rate cycles (% per annum)Source: BCB, BM, BCC, BR, BCRP, Macrobond, BNP Paribas. Dotted lines are BNPP forecasts9 The good: Chile, Mexico, Peru, Colombia. The bad: Brazil, Argentina. The ugly: Venezuela.LATAM: DOING BUSINESS RANKING CORRELATES WITH INCOMESource: World Bank, BNP Paribas; U.SMexicoChilePeruColombiaBrazilArgentinaIndiaVenez uelaEritrea56789101112020406080100120140160180200GDP per capita (USD) -Log scaleDoing Business RankBIGGER NUMBERS MEAN WORSE AT DOING BUSINESS RANK10 LATAM: SOVEREIGN RATINGSBrazil’s rating downgrades in recent years contrast with othersSource: S&P, Moody’s, Fitch Rating, Bloomberg, BNP ParibasMar-98Mar-00Mar-02Mar-04Mar-06Mar-08Mar-10Mar-12Mar-14Mar-16ChileM e xicoColom biaBr az i lAA-ABBB+BBB-BB+BB-BInvestment grade11 EM: SOVEREIGN RATINGS AND USD INDEXUSD weakening tends to improve sovereign ratings in emerging markets (EM)Source: S&P, Moody’s, Fitch Rating, Bloomberg, BNP Paribas7080901001101201301996 1998 2000 20022004 2006 2008 2010 2012 2014 2016 2018EM sovereign ratings index (3-month moving average)DXY dollar index (12-month moving average, RHS, inverted)BBBBBBBBBBB+BBBBBB-12 DateCountryElection TypeDetails11 March 2018ColombiaLegislativeAll legislatorsrenewed27 May 2018ColombiaPresidentialVoting for President (1stround)17 Jun 2018ColombiaPresidentialVoting for President (2ndround)1 July 2018MexicoGeneralVoting for President(1 round only), and all of Chamber of Deps7 October 2018BrazilGeneralVoting for President(1stround), 2/3 of the Senateand all of Chamber of Deps28 October 2018BrazilGeneralVoting for President (2ndround)2018 LATAM ELECTIONS CALENDARHeavy calendar of electionsBRAZIL: Election TrackerMEXICO: Election TrackerCOLOMBIA: Election Tracker13 2Brazil: Election time BRAZIL: REAL GDP GROWTH (%)Growth recovery gains traction in 2018Source: IBGE, Macrobond, BNP Paribas. Dotted lines and red bars are BNPP forecasts.15 BRAZIL: EXPECTATIONS FOR 2018 REAL GDP GROWTHWe think the market consensus on growth will continue to move our waySource: IBGE, Macrobond, BNP Paribas. 16 BRAZIL: CONSUMER AND BUSINESS CONFIDENCEConfidence is keySource: FGV, Macrobond, BNP Paribas17 BRAZIL: UNEMPLOYMENT RATE (% OF LABOR FORCE)The unemployment rate has peaked; improvement will be gradualSource: IBGE, Macrobond, BNP Paribas. PNAD data. Dotted lines represent BNPP forecasts.18 Inflation plunges below target, for the first time in many yearsBRAZIL: CPI INFLATION AND TARGET RANGE (%, y/y)Source: IBGE, Macrobond, BNP Paribas. Dotted lines represent BNPP forecasts.19 Underlying services price inflation has plummetedBRAZIL: SERVICES UNDERLYING INFLATION (% Y/Y)Source: IBGE, BCB, BNP Paribas. Service underlying ex- food (3mma a.r.) Service underlying ex- food (%,y/y)20 Inflation expectations fall back to targetsBRAZIL: CONSENSUS INFLA