Latam Weekly: Decided Decisions, Macro Updates, and Trade Negotiations

ECONOMIC OVERVIEW

• There should be no surprises from all key Latam and G10 central bank decisions next week, with rate cuts from the Fed and BoC and rate holds from the BCCh, BanRep, ECB, and BoJ widely expected. The focus will be on forward guidance, which may be limited in Chile ahead of elections while Colombian officials may express worries about next year’s minimum wage hike.

• Mexican 3Q GDP is next week’s Latam data highlight, with the data expected to show a contraction in economic activity from year-ago and quarter-ago levels, reflecting weak domestic demand conditions and external challenges. In today’s report, the team goes over the recently approved tax increases for 2026 which may only act as a small support for public finances.

• A possible meeting between Trump and Xi in Asia will be in focus for markets, with the trading mood also driven by earnings releases by U.S. tech giants.

PACIFIC ALLIANCE COUNTRY UPDATES

• We assess key insights from the last week, with highlights on the main issues to watch over the coming fortnight Mexico.

MARKET EVENTS & INDICATORS

• A comprehensive risk calendar with selected highlights for the period October 25–November 7 across the Pacific Alliance countries and Brazil.

Chart of the Week

ECONOMIC OVERVIEW: DECIDED DECISIONS, MACRO UPDATES, AND TRADE NEGOTIATIONS

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

• There should be no surprises from all key Latam and G10 central bank decisions next week, with rate cuts from the Fed and BoC and rate holds from the BCCh, BanRep, ECB, and BoJ widely expected. The focus will be on forward guidance, which may be limited in Chile ahead of elections while Colombian officials may express worries about next year’s minimum wage hike.

• Mexican 3Q GDP is next week’s Latam data highlight, with the data expected to show a contraction in economic activity from year-ago and quarter-ago levels, reflecting weak domestic demand conditions and external challenges. In today’s report, the team goes over the recently approved tax increases for 2026 which may only act as a small support for public finances.

• A possible meeting between Trump and Xi in Asia will be in focus for markets, with the trading mood also driven by earnings releases by U.S. tech giants.

The final week of the month will bring something for everyone, with Latam and G10 central bank policy announcements and GDP releases, unemployment data in the Pacific Alliance, and a highly awaited possible meeting between Presidents Trump and Xi following weeks of building U.S.-China trade tensions. Peru and Brazil are the exceptions, with relatively quiet calendars. On top of economic and political developments, global markets will move to the beat of earnings releases by Apple, Meta, Amazon, and Alphabet among other major names.

Chile’s central bank is first up, with a monetary policy announcement on Tuesday that is universally expected to leave the benchmark rate unchanged at 4.75%. With elections around the corner (November 16^th), robust economic activity, and some recent heat in inflation prints, there’s no real reason for the BCCh to loosen policy further next week. Unemployment rate data due on Wednesday, followed by retail sales and industrial/manufacturing/copper production figures out on Thursday may help us refine expectations for the December meeting.

However, markets are relatively unconvinced that we will see rate cuts again this year, with less than 10bps priced in by year-end. On the flip side, results to the BCCh’s economists survey published earlier this week showed respondents are still very much biased in favour of a cut, with about 75% of them forecasting a 4.50% rate at year-end—with this share even increasing from 65% at the September survey. Speaking of surveys, CADEM presidential poll results published last Sunday show the left’s Jara at 29% compared to the right’s Kast at 24% in the first-round vote, but the latter’s would-be second round lead has widened to 49–33 compared to 47–36 a week prior.

At the opposite end, BanRep closes the week with an expected rate hold at 9.25%—which we expect will remain the case until 2Q26. August economic activity data released on Monday was somewhat disappointing, with a slowdown to 2.0% from 4.4% in July falling short of forecasts of around 3%. But, seasonal or base effect factors may have played an outsized role in driving a soft print while the economy is still tracking an expansion of about 2.5% this year on the back of strong household spending (see here); we’ll also see what Friday unemployment figures have to say. The bank’s guidance will be the main thing to watch next week, with a focus on their views regarding the government’s possible double-digit minimum wage increase for 2026 and the upside inflation risks it would generate.

Mexican 3Q GDP data on Thursday is the region’s main economic release next week, and it’s not expected to be a good one. After registering no year-on-year growth in 2Q, following a 0.9% expansion in 1Q, Mexico’s economy is seen contracting by around 0.5% y/y in the third quarter. Monthly economic activity data showed that GDP fell by 1.1% and 0.9% y/y in July and August, respectively, due to a pronounced contraction in manufacturing (-1.9% and -3.1%) joining ongoing construction weakness, but also a weak showing for the services sector.

On 3m/3m basis with seasonally-adjusted data, Mexico’s economy contracted by 0.2% in the quarter to August, compared to the 0.6% expansion it tracked in the quarter to May or 0.5% to June, which lined up with the 3Q reading of 0.6% q/q. Put another way, Mexico’s economy likely contracted in y/y and q/q terms during the third quarter, reflecting a challenging domestic backdrop of weak hiring, weak investment, and soft confidence compounded by external risks in U.S. trade policy.

On the political front, our team in Mexico discusses in today’s report the recent approval of special taxes for the 2026 fiscal year. The law has established a huge 87% tax hike on sugary drinks, with a 100% levy on tobacco products like vapes and pouches, as well as a 50% tax hike on online gambling, and 8% on violent video games, among others. The tax law is expected to lift public revenues by around MXN 75bn in 2026 but not materially alter the worrying path of Mexican government finances.

Outside of the region, the Fed and the BoC are widely expected to announce 25bps cuts on Wednesday, while the ECB and BoJ are seen keeping policy rates steady on Thursday with the latter perhaps offering more exciting forward guidance colour. U.S. GDP scheduled for Thursday is unlikely to arrive due to the now second-longest U.S. government shutdown, but we will get 3Q GDP data from a handful of Eurozone countries, and the bloc as whole, over Thursday and Friday, alongside inflation readings from the region. Canada also releases monthly GDP data to end the week. 

PACIFIC ALLIANCE COUNTRY UPDATES

Mexico—2026 Tax Hikes Approved

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

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

Martha Cordova, Economic Research Specialist
+52.55.5435.4824 (Mexico)
martha.cordovamendez@scotiabank.com.mx

Last week, Mexico’s House of Representatives approved the Special Tax on Production and Services (IEPS) Law for the 2026 fiscal year. One of the most significant changes is the increase in the tax on sugary drinks, which will rise from $1.64 to $3.08 per litre—an 87% hike. Héctor Saúl Téllez, Deputy Coordinator for Economic Affairs of the PAN party, estimates that this adjustment will generate revenues of $75.29 billion pesos in 2026, a 73.8% increase compared to the current year.

Additionally, for the first time, a tax of $1.50 per litre will be applied to beverages sweetened with non-caloric sweeteners, which were previously not included in this legislation.

Regarding nicotine and tobacco products, a 100% tax will be imposed on all items containing nicotine, such as pouches and vapes, along with a 200% ad valorem tax on cigars. Moreover, the specific tax per cigarette will increase from $0.64 to $0.85 in 2026, leading to a 32.8% rise in cigarette prices, with further gradual increases expected through 2030.

Other consumer products affected by this reform include violent video games: 8% increase, online betting platforms: 50% increase, games of chance and lotteries: tax rate will rise from 30% to 50%, among others.

The most immediate adverse effect of this reform will be its impact on consumer prices. It is estimated that the tax increase on soft drinks alone could contribute 5 basis points to inflation in 2026.

The central argument behind this reform is the promotion of public health and well-being. This is supported by alarming data: 70% of Mexico’s adult population is overweight or obese, and 90% of type II diabetes cases are directly linked to excess weight. However, for the effects of this fiscal policy to be sustainable and long-lasting, it must be accompanied by concrete actions in the healthcare sector.

Currently, public health spending has decreased by 11%, representing just 2.6% of GDP—well below the minimum recommended by the World Health Organization, which suggests investing at least 6% of GDP.

The IEPS reform for the 2026 fiscal year reflects an effort by the Mexican government to discourage the consumption of harmful products and boost tax revenue. While these adjustments will have short-term inflationary effects, their success will depend on a comprehensive strategy that includes increased investment in the healthcare system. Without a parallel strengthening of public health spending, the expected benefits in terms of social well-being may be limited, turning this reform into a revenue-generating measure rather than an effective public health policy.