Economic Analysis - BMI Vs. Consensus: Below Consensus On US Growth And LatAm Rates - FEB 2018
Below consensus on US growth and interest rates: We forecast real GDP growth of 2.2% in the US in 2018, notably below consensus of 2.5%. This forecast is based on our belief that recent quarterly GDP readings overstate underlying demand, and therefore are not sustainable ( see ' Economy ' s Resilience To Hurricanes Bodes Well For 2018 ' , October 30). That said, we note that US tax reform looks set to arrive earlier than we had expected, presenting upside risks to our growth forecasts ( see ' Swift Tax Reform Passage Poses Upside Risks To 2018 Forecasts ' , December 5). We expect steady rate hikes in the quarters ahead, forecasting 50bps of hikes in both 2018 and 2019, placing in between futures markets on the low end and the FOMC and consensus expectations on the high end ( see ' Powell Represents Status Quo, But Markets Underestimating Hikes', November 2).
Below consensus on LatAm interest rates: We expect that relatively weak growth recoveries and stable inflation will spur accommodative monetary policy across Latin America in 2018, underpinning our below consensus interest rate forecasts in Argentina, Colombia, Mexico and Peru. Brazil is somewhat out of line with this broader trend, as our end-2018 forecast is in line with consensus expectations at 7.00%.
Above consensus on LatAm FX: We are above consensus on end-2018 exchange rates in Argentina, Chile, Colombia, Mexico and Peru, with Brazil yet again as the outlier. This is a product of our positive outlook for most major commodities, as well as strong real interest rate differentials with the US given our below-consensus US interest rate forecast. We note that while we expect most countries to continue a shift towards prudent economic reforms that will bolster the region's growth outlook, supporting currencies, a slate of elections in 2018 could threaten to stall or undo reform efforts. For example, a disappointing result in the first round of Chile's presidential election for market favourite Sebastian Pinera drove a sell-off in the CLP in recent weeks ( see ' First Round Election: Pinera Disappoints, But Still Slight Favourite', November 21).