Latam Weekly: New Month, Same Risks?

ECONOMIC OVERVIEW

• We’re halfway through the year now, but we’re still dealing with the same challenges to the global and Latam economies: trade and fiscal uncertainty.

• Trump’s threat to impose tariffs on Canada and cancelling trade negotiations is sending markets into the weekend in a negative mood instead of looking forward to shortened trading weeks in the U.S. and Canada.

• Chilean sectoral output and economic activity, Peruvian CPI, and Mexican remittances, investment, and employment readings are the data highlights in Latam, while we also monitor the minutes to the latest BanRep and BCCh rate decisions and Banxico’s economists survey results.

• In the G10, U.S. employment and ISM figures are in focus, alongside the release of Eurozone CPI and Chinese PMIs. Canadian and U.S. markets are closed on Tuesday and Friday, respectively.

PACIFIC ALLIANCE COUNTRY UPDATES

• We assess key insights from the last week, with highlights on the main issues to watch over the coming fortnight in the Pacific Alliance countries: Mexico and Peru.

MARKET EVENTS & INDICATORS

• A comprehensive risk calendar with selected highlights for the period June 28–July 11 across the Pacific Alliance countries and Brazil.

Chart of the Week

ECONOMIC OVERVIEW: NEW MONTH, SAME RISKS?

Juan Manuel Herrera, Senior Economist
+52.55.2299.6675 
juanmanuel.herrera@scotiabank.com

• We’re halfway through the year now, but we’re still dealing with the same challenges to the global and Latam economies: trade and fiscal uncertainty.

• Trump’s Friday threat to impose tariffs on Canada and cancelling trade negotiations is sending markets into the weekend in a negative mood instead of looking forward to shortened trading weeks in the U.S. and Canada.

• Chilean sectoral output and economic activity, Peruvian CPI, and Mexican remittances, investment, and employment readings are the data highlights in Latam, while we also monitor the minutes to the latest BanRep and BCCh rate decisions and Banxico’s economists survey results.

• In the G10, U.S. employment and ISM figures are in focus, alongside the release of Eurozone CPI and Chinese PMIs. Canadian and U.S. markets are closed on Tuesday and Friday, respectively.

We’re halfway through the year now, but we’re still dealing with the same challenges for the global and Latam economies. It seemed we were closing June out with some optimism on the tariffs front as the U.S. officialised its trade détente with China and reports emerged that the E.U. and the U.S. were confident about reaching a trade agreement. But now we have to contend with Trump’s threat to Canada of tariff hikes to be announced over the next few days as the U.S. terminates negotiations with its northern neighbour.

With only a few days to go until the July 9^th deadline for the ‘Liberation Day’ tariffs pause, it seems anything can happen for the U.S. trading partners around the globe; the Trump administration can change its mind a few hours apart. Alongside trade news, developments around the slow progress of the U.S. tax bill in Congress will also be in the market’s line of sight, all the while fiscal uncertainty continues to hang over Colombia after dual rating downgrades this week (more below).

It may have been relatively quiet trading next week, particularly in North America, with Canada closed on Tuesday for Canada Day and the U.S. shut on Friday for Independence Day, but we’ll be on alert for tariff news. The release of U.S. employment figures on Thursday as well as ISM manufacturing and services and job opening readings over the week is the data highlight for global markets, alongside Eurozone CPI data and Chinese PMIs.

Latam markets will not be on holiday next week, facing some key releases on tap, while we follow fiscal news in Colombia after S&P and Moody’s rating downgrades, and we open Monday to the results of Chile’s primary elections for the centre-left/left’s official candidate for the presidency. Colombia’s release calendar is relatively bare, with the release of BanRep’s minutes on Thursday standing as the highlight after the bank’s divided rate hold on the 27^th, all while we monitor the response of the country’s fiscal authorities to calm fears after the dual rating downgrade.

On top of political news, Chile’s week kicks off with the release of retail sales, industrial production, commercial activity, and unemployment readings for May, followed by economic activity data (IMACEC) for the same month on Tuesday. Monday’s data are expected to show an acceleration in sectoral output after April’s year-on-year prints were depressed by base effects owing to the timing of Easter (and earlier, in February, due to the short-lived national blackout).

Setting these effects aside shows that the Chilean economy is on strong footing, which should be reflected in growth of ~3.5-4.0% in Tuesday’s IMACEC release that would average growth around 2.5% in the first five months of the year. On Friday, we’ll also get the minutes to the BCCh’s June decision, when it opted for a rate hold in light of external risks (namely, the Iran-Israel conflict). We’ll be on the lookout for the board’s thoughts on the possibility of resuming rate cuts were geopolitical risks to ease, as they seemingly have since the bank’s decision on the 17^th.

In Mexico, we’ll pay close attention to remittances figures for May out on Tuesday to gauge the impact of hardened U.S. immigration policy on Mexican household incomes. In today’s report the team in Mexico previews next week’s releases, which also include investment data for April, and formal employment numbers for June, with the former expected to continue declining (more so due to the timing of Easter) while the latter could continue to show depressed hiring momentum amid multitude domestic and external headwinds. Banxico will also publish the results to its survey of economists, with a focus on analysts’ expectations for monetary policy in the months ahead after the bank’s divided 50bps rate cut earlier this week (see here).

The team in Lima give their take on Peru CPI data due on the 1^st. With a mild 0.1% m/m expected rise in prices, Peruvian inflation should remain stable at 1.7 % for a thirteenth sub-2% reading in fourteen months (only November’s 2.1% print broke this trend). Inflation is expected to pick up over the second half of the year, albeit mostly due to base effects, towards an end-2025 forecast of 2.3%. In today’s Weekly, the team also go over their updated projections for a stronger Peruvian sol (though still weakening by year-end) with external factors driving greater strength in the currency. This may not last, as uncertainty heading into the 2026 elections may weigh on the currency.

PACIFIC ALLIANCE COUNTRY UPDATES

Mexico—Remittances, Economic Activity, and Investment Data in Focus

Rodolfo Mitchell, Director of Economic and Sectoral Analysis
+52.55.3977.4556 (Mexico)
mitchell.cervera@scotiabank.com.mx

Brian Pérez, Quant Analyst
+52.55.5123.1221 (Mexico)
bperezgu@scotiabank.com.mx

Miguel Saldaña, Economist
+52.55.5123.1718 (Mexico)
msaldanab@scotiabank.com.mx

In the upcoming week, Mexico will continue to release key economic indicators, which we believe will reinforce signs of sluggishness in the economy. Although April’s monthly economic activity proxy showed a rebound, we consider the figure to be atypical and not indicative of a trend reversal in the weakness observed particularly since the last quarter of the previous year. The IGAE (a GDP proxy) rose 0.5% month-over-month in seasonally adjusted terms, driven by a slight increase in industry (0.1%) and services (0.9%). It’s worth noting that these seasonally adjusted figures are statistical estimates and may still be subject to revisions, so adjustments in future readings cannot be ruled out.

On an annual basis, the GDP proxy showed a contraction of -1.5%, with industrial activity down -4.0%, mainly due to a sharp drop in construction (-6.8%) and a decline in manufacturing (-2.6%). Services also turned negative, falling from 2.6% to -0.4%, particularly affected by a steep drop in wholesale trade (-8.1%) and a slowdown in retail sales (1.7%).

Next week, gross fixed investment and private consumption data may provide further insight into the extent of demand-side weakness. Given the prevailing uncertainty, we expect continued declines in construction investment, while machinery and equipment may also post another annual contraction. On the consumption side, we anticipate the largest declines in goods, especially imported and durable goods. Consumer sentiment may remain cautious, as consumer confidence—also to be released next week—has been declining year-over-year since January, despite a seasonally adjusted monthly rebound in May (up 1.2 points to 46.7), driven by improved perceptions of both current and future household conditions, even as views on the national situation remain negative.

Additionally, data impacting household income will be released, particularly remittances and formal job creation. Remittances face a challenging outlook amid renewed immigration enforcement efforts in the United States. With increased controls and proposals to tax remittance flows, the amount of money sent back home could continue to decline, following the -2.5% annual drop recorded in April. The 12-month cumulative total is nearing negative territory for the first time since 2013, hovering around USD 64 billion.

Meanwhile, formal job creation also faces a weak outlook due to rising uncertainty. The annual total is nearly flat, with only 23,000 new jobs created in May—just about 20% of the U.S. job creation in May alone—equivalent to a 0.1% annual increase. These figures may also explain the uptick in the unemployment rate in May, which rose to 2.7%, alongside an increase in informality from 54.7% to 54.9%. The number of registered employers in the social security system has been declining year-over-year since July 2024, in line with growing uncertainty.

Finally, we will also see updates to private sector analyst expectations. We believe the new data will lead to upward revisions in inflation forecasts and slight downward adjustments in this year’s growth projections. Of particular interest will be any changes in year-end interest rate expectations following Banxico’s recent shift in tone. The Citi Survey will provide further detail on anticipated moves for the August meeting.

Peru—Strengthening Fundamentals Come From Abroad

Guillermo Arbe, Head Economist, Peru
+51.1.211.6052 (Peru)
guillermo.arbe@scotiabank.com.pe

We have lowered our PEN year-end 2025 forecast from 3.78 to 3.68. We have done this in recognition of the enduring strength of the currency vis-à-vis the USD, and of the solid fundamentals giving support to this strength.

Our new PEN forecast still means that we expect the PEN to weaken moderately towards the end of 2025, as the 2026 elections—and the uncertainty that it brings—approach. In the past, the PEN has typically followed an elections cycle (chart 1), weakening towards the end of the pre-election year and into the election year, and then correcting or not after the elections, depending on the result. A path similar to the average of the past five elections cycle would put the PEN at 3.67 – 3.68 by the end of the year.

The risk is to the downside, however. There are two factors giving extraordinary support to the PEN: the weak USD globally, and the extremely strong external account fundamentals that Peru is enjoying. Peru’s terms of trade are at their strongest level since official measurements began in 1950 (chart 2). Peru’s trade surplus is soaring (chart 3). The trade surplus was a record USD23.8bn in 2024. That record will be broken in 2025. Our trade surplus forecast stands at USD26bn. However, the trend is stronger than this, and the annualized Q1 trade surplus comes to USD27.5bn.

These fundamentals are overwhelming political uncertainty issues. However, elections are still over nine months away, and, if past precedents hold, the PEN should begin to weaken somewhat by year-end. Only, it seems like this is a big “if” this time around. Peru has never entered a political elections cycle with external fundamentals as strong as they are now. So the real question might be, rather, how long will these external fundamentals last? Just how long will copper prices remain this strong, and at what point will the USD global trend soften and turn.

On another note, on Tuesday July 1^st, the inflation figure for June will be released. We expect a monthly inflation figure of around 0.1%, which would hold the yearly inflation figure stable at 1.7% (chart 4). Note, however, that the Ministry of Agriculture is no longer providing key food and agricultural goods prices, thereby reducing the sample of key prices that we can follow. This means that our figures have a greater margin of error than in the past. Having said that, inflation does seem on trend to meet our full-year 2025 forecast of 2.3%.