Why a consumer recession is all but inevitable for most in Latin America

A consumer recession is almost inevitable in Chile and Colombia due to overheating domestic demand combined with the need to simultaneously tighten fiscal and monetary policy. But thanks to ample savings and deep financial markets, Chile should be able to tamp down consumption better than in Colombia.

What you will learn:

• In Colombia, policymakers intend to postpone the slowdown, which might backfire as inflation becomes more entrenched and the twin deficits grow. This would increase the likelihood of a sharper correction later.
• In Brazil, which alongside Mexico has had the slowest of the LatAm6 recoveries so far, we also forecast a consumer recession. We think Bolsonaro’s pre-election fiscal aid pledges will create a negative fiscal impulse in early 2023, by which time real rates will be at their peak.
• Mexico and Peru are the only two economies of the LatAm6 that we expect to avoid a consumer recession in the next year.