Latin American economic analysis – September 6, 2005

Latin American economic analysis – September 6, 2005

Economic news from Latin America has been fairly quiet this week and has withered in the shadow of news coverage of Hurricane Katrina. Regardless, there are still many important things going on in the region. Mexico reported that its inflation rate dropped to record lows in August. Expectations are riding high that the central bank will cut rates for the second month in a row. Reports are that inflation is at 3.95 percent, which is within the central bank’s targeted range of two to four percent. Analysts widely believe that it will knock another quarter point off the overnight lending rate at its meeting on September 23. Mexican steelmaker Sicartsa is still gripped by the mining-metalworkers union’s 40-day old strike. The latest news on that front is a union initiative to get Sicartsa’s parent company Grupo Villacero to negotiate directly with the workers. The company has thus far resisted, and both sides remain deadlocked. Also, recently a leading Mexican newspaper reported that the country’s metal-mechanic sector could grow as much four percent in the coming year. That growth hinges largely, however, on steel and energy prices remaining stable. For the week, Mexico main stock index, the Bolsa, rose for a second consecutive week. Notable among its performers was cement maker Cemex, who is expecting an upswing in business as its products find greater demand in Hurricane Katrina ravaged areas. Chile’s central bank will most likely raise its overnight lending rate for the tenth time in 13, in an effort to control inflation. Should they do so, the rate would be four percent. Since September 2004, the bank has raised the rate from 1.75 percent, a record low. Chile has seen a surge in inflation since international oil rates have rocketed upward 48 percent and its economic activity has increased significantly. Over the past 12 months, Chile’s peso has jumped 16.5 percent fueled primarily by a surge in copper prices. Speculation is also rife that Brazil’s central bank will cut its overnight rate after it was revealed that factory production rose at its slowest rate in nearly two years. Manufacturing and mining rose a scant 0.5 percent year-on-year in July after seeing a 6.3 percent jump in June. The central bank has left the overnight lending rate at 19.75 percent for the past three months. Many fear that the rate is so high it is discouraging real estate investment. The more pressing concern for growth is the scandal which has enveloped Brazilian president President Luiz Inácio Lula da Silva. For the most part, South America’s largest economy has weathered the storm fairly well. Lula has so far avoided impeachment, but corruption proceedings have tied up Brazilian legislators. That has made it difficult for the embattled president to push through much-needed reforms that would greatly help Brazil’s economy. Brazil’s main index the Bovespa turned in a good week rising 3.3 percent this week. Notably, Brazilian steelmaker Gerdau posted a six percent rise. Gerdau can expect greater success in the coming months as rebuilding efforts in the US Gulf Coast region start in earnest. The steelmaker is the US’s second largest manufacturer of wire, nails, rebar, I-beams and other crucial construction items. Finally, Argentina’s UOM metalworkers union is threatening to strike at steelmaker Siderar’s plants over a dispute stemming from the company’s alleged failure to comply with an agreement to increase workers’ salaries. The two sides are reportedly in talks and there is no mention on what, if any, progress they have made at this time. For the week Argentina’s stock index showed gains, as did Peru’s. Chile’s and Venezuela’s, meanwhile, remained unchanged. Overall, investment firm Morgan Stanley reports that the Latin American stock index rose 0.9 percent for the week.