Monday, 12 January 2009

Goldman Sachs Sees Rough Ride Ahead for Brazil, Mexico

On a Jan. 9 report, Goldman Sachs revised down its 2009 macroeconomic outlooks for Brazil and Mexico. The shop warns of the rising danger of using excess fiscal savings or monetary policy to spur growth at a moment when imbalances can get bigger and harder to control. According to Goldman, ''the large global financial shocks will shift the balance of payments of Brazil and Mexico to deficits in 2009. Such deficits would make adjustment a more credible policy choice than counter-cyclical measures.´´

For Brazil, Goldman expects the economy to shrink a seasonally-adjusted 1.5 percent in the fourth quarter;
2009 growth is expected at 1.25 percent, down from a previous forecast. The forecast for inflation is also down. Goldman expects cumulative reductions in the Selic rate amounting to 250 basis points by Sept., from a previous estimate of 150 basis points. ''However, we still believe that COPOM will start by cutting the Selic by 25 basis points (probability of two-thirds) at the meeting scheduled for Jan. 21. We ascribe a probability of one-third that COPOM would start the easing cycle with a rate cut of 50 basis points.´´

In the case of Mexico, Goldman maintained its initial forecast of an economic contraction of 0.5 percent this year. As inflation declines, the Banco Central de Mexico will trim the TdF rate, beginning Feb. 20, six times this year by 25 basis points per meeting, to 6.75 percent by July. In general, as a note and faithful to my years of experience covering regional economics for Bloomberg, Goldman's economic research team was always one of the top three in market predictions accuracy in Latin America -- and the sharpest in its opinions about policy making.

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