• Fitch Solutions have become far more downbeat about the prospects for Colombian President Gustavo Petro’s reform programme in 2023 due to a series of legislative failures and a deteriorating security situation in the past several months.
• March has been a month of negative political developments for the sovereign, including the non-support of the new political and health bill by the legislative body.
• Additionally, Peru's government announced the "definitive withdrawal" of its ambassador from Colombia amid diplomatic tensions between both countries. The decision responds to "repetitive interventionist and offensive comments" from Colombian President Gustavo Petro, Peru's foreign ministry said in a statement.
• Based on the dampening political outlook, Fitch revised its Short-Term Political Risk Index (STPRI) score from 62.9/100; to 61.7, reflecting lower scores for the ‘policy-making process’ and ‘security /external threats’ components.
• Despite the dampened outlook, Colombia still ranks above the average STPRI score for the six major markets for the region. Notably, Chile ranks first, above Colombia, with a headline score of 64.6, while Mexico’s in second place, scoring 62.9. These are followed by Brazil (51.5), Argentina (50.8), and Peru (43.8).

(Source: Fitch Solutions)

• Brazil's finance ministry unveiled on Thursday, March 30, a proposal for new fiscal rules to balance limits on spending growth with the government's vow to boost social programs and public investment, lifting local markets after months of uncertainty.
• The long-awaited proposal is key to easing fiscal concerns after leftist President Luiz Inacio Lula da Silva secured congressional approval to bypass a constitutional spending cap. His spending vows and criticism of the central bank have pushed up inflation expectations since he took office in January.
• Notably, the new fiscal framework targets a zero primary deficit in 2024, followed by a primary surplus equal to 0.5% of GDP in 2025 and 1% of GDP in 2026. The primary budget target would have a margin of plus or minus 0.25 percentage points.
• Additionally, the new rules would allow public spending to grow between 0.6% and 2.5% per year above inflation. Spending growth would also be limited to 70% of revenue growth in the prior 12 months.
• Brazil's benchmark stock index rose 1.5%, and its currency firmed slightly against the U.S. dollar to a nearly two-month high as analysts greeted the proposal with measured relief, highlighting questions about its details and execution.
• This year's primary deficit target, the first of the Lula administration, is 228.1 billion reais (US$44Nn). However, the finance ministry recently estimated that the shortfall will be 107.6 billion reais, equal to 1.0% of GDP, helped by a jump in expected tax revenue.

(Source: Reuters)

• There has been an increase in the unemployment claims that rose moderately last week showing no signs yet of a possible credit tightening affecting the public and the tight labour market. 
• However, the risks to the economy are mounting. Other data on Thursday showed corporate profits in the fourth quarter declining by the most in five years, in part because of penalties and fines imposed on several businesses. That included a $1.7 billion civil penalty against Wells Fargo for what the government said was to "settle allegations that it illegally assessed fees and interest charges on auto and car loans."
• "The song remains the same for the labour market," said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. "Layoffs remain at very low levels and the labour market remains extremely tight."
• Initial claims for state unemployment benefits increased by 7,000 to a seasonally adjusted 198,000 for the week ended March 25, the Labor Department said. Economists polled by Reuters had forecast 196,000 claims for the latest week. Claims have stayed low despite high-profile layoffs in the technology industry.
• The unemployment rate was at 3.6% in February. Labour market resilience is underpinning the economy, though clouds are gathering.

(Source: Reuters)

• Buyers are flooding back into the market, mortgage rates have fallen off their recent highs, and there are still far too few homes for sale to meet demand. But potential sellers aren’t budging. New listings continued to fall in March, according to Realtor.com, down 20% from the same month last year. That decline in new listings outpaced the 16% drop posted in February. New listings in March were nearly 30% below pre-pandemic levels.
• The active inventory of homes for sale is, however, 60% higher than at the start of last spring, but that is only because homes are taking longer to sell. Inventory is also half of what it was at the start of spring in 2019 before the Covid pandemic caused an unprecedented run on housing.
• Homes are now sitting on the market for an average of 54 days, up from an average of 36 days at the start of last spring. Time on the market was longer in all of the top 50 metropolitan markets, but the greatest increases were in Raleigh, North Carolina (up 42 days), Kansas City, Missouri (up 37 days), and Austin, Texas (up 37 days). 
• Mortgage rates dropped slightly in early March due to the stress on the banking system from bank failures. They are now, however, moving higher again, although not quite as high as they were last fall.
• This could result in a housing recession, which occurs when the number of sold properties declines over a period of six months. The two main reasons that could potentially drive the housing market recession are surging interest rates and high construction costs.

(Source: CNBC)

• At its meetings on the 27^th and 28^th of March 2023, the Monetary Policy Committee (MPC) opted to maintain the policy interest rate (the rate offered to DTIs on overnight placements) at 7.0% and continue to maintain relative stability in the foreign exchange market.
• Jamaica’s inflation rate of 7.8% in February 2023 was below the 8.1% recorded in January 2023. Core inflation (which excludes food and fuel prices from the Consumer Price Index) also decelerated to 6.6% in February from 7.1% in January 2023. The key external drivers of headline inflation, such as grains, fuel, and shipping prices, continued to decline broadly in line with the Bank’s expectations. The pace of monetary policy tightening by the United States Federal Reserve Board also slowed as expected. Moreover, recent developments in the US banking system suggest that this slowing could continue as interest rates in that economy may be near their peak.
• Consistent with global consensus forecasts for a fall in commodity prices and the Bank’s overall monetary policy stance, and in the absence of new shocks, the Bank forecasts that inflation is on track to continue decelerating in 2023. However, one-off regulated price adjustments may result in a temporary uptick in inflation. The forecast also assumes that the public’s expectation for future inflation will continue to fall as the prices of imported commodities decline and domestic monetary policy actions take effect.
• Notwithstanding the favourable outlook, the MPC assesses that the near-term risks to the inflation outlook remain elevated. Against the background of continued growth in the domestic economy, labour market shortages carry the potential for future wage adjustments that can put upward pressure on inflation. Higher inflation could also occur from a worsening in supply chain conditions and higher commodity prices if there are further geopolitical disruptions. On the downside, weaker-than-expected global growth could negatively affect domestic demand and some projected adjustments to regulated prices may not materialise.
• At its previous meeting, the MPC unanimously decided to increase by one percentage point (pp) the domestic and the foreign currency Cash Reserve Requirements (CRRs) applicable to deposit-taking institutions (DTIs), effective 01 April 2023. Currently, DTIs are required to hold a minimum of 5.0 per cent of their Jamaican dollar-denominated prescribed liabilities and 13.0 per cent of their foreign currency-denominated prescribed liabilities as cash reserves at the central bank.  With this adjustment, the domestic currency CRR will be increased to 6.0 per cent and the foreign currency CRR will move to 14.0 per cent.
• The Bank will continue to closely monitor the global and domestic economic environments for potential risks that could threaten Jamaica’s inflation target. At the same time, the Bank of Jamaica continues its review of the monetary transmission mechanism to ensure that monetary policy achieves the desired impact on inflation. The date of the next policy rate decision announcement is 29 May 2023.

(Source: BOJ)

• Jamaica is uniquely positioned to further capitalise on the growing demands of tourism. This is through the Tourism Innovation Incubator, which facilitates the implementation of new ideas and experiences among locals to add to the tourism value chain, Portfolio Minister, Hon. Edmund Bartlett highlighted.
• He noted that since the facility’s establishment, several Jamaicans have participated in the initiative, which allows them access to $100Mn to transform ideas into profitable projects. He was addressing journalists at Jamwest Motorsports and Adventure Park in Little London, Westmoreland, following the conclusion of a two-day tour across the parishes of Hanover and Westmoreland, from March 23 to 24.
• This Tourism Innovation Incubator not only sets locals on an economic growth path but further cement Jamaica as a “thought leader” in the region and the world. the more Jamaicans are able to monetise their ideas and experiences in the industry, the more it re-emphasizes tourism’s inclusivity, with locals sharing in the sector’s ownership.

(Source: JIS News)

• Fitch Solutions is forecasting that Saint Lucian's real GDP will grow 3.6% in 2023 from an estimated 12.2% in 2022, and an estimated 11.4% in 2021 as base effects fade and the tourism sector growth slows. 
• Lucia’s economy suffered a catastrophic contraction of -20.4% in 2020, due to Covid’s impact on the tourism industry. The country has been on a road of recovery in the last two years, and Fitch expects that the continued rebound in the travel sector will boost employment and support private consumption.
• In particular, private consumption will be driven by tourism sector growth and the resulting reduction in unemployment, as well as sustained social spending by the government, which will support household incomes.
• Additionally, the government policies of the centre-left Labour Party will keep government spending elevated. As exports and investment growth ease compared to the rebound seen in 2022, Fitch also expects that growth in St. Lucia will normalize closer to 2.0% (2015-2019) in the years ahead, averaging 2.6% growth in 2023-2026.
• Risks to this view, however, are to the downside. As was seen during the pandemic, St. Lucia is extremely vulnerable to outside shocks and is very dependent on the tourism industry. If the economic slowdown is stronger than the current prediction in key tourism markets like the United States, there is likely to be substantially slower growth in St. Lucia in 2023.

(Source: Fitch Solutions)

• Chile detected the first case of bird flu in a human, the country's health ministry reported on Wednesday. The case was detected in a 53-year-old man who presented severe influenza symptoms, according to a statement issued by the ministry, but they noted the patient was in stable condition.
• The government is also investigating the source of contagion as well as others who were in contact with the patient. Chile has reported cases of the H5N1 bird flu since late last year in wild animals.
• Recent cases in industrial farms caused the government to halt poultry exports. Industrial cases have also been detected in Argentina, but Brazil, the world's largest exporter of poultry, remains free of the contagion.
• Chilean health authorities noted the virus can be transmitted from birds or marine mammals to humans, but there is no known human-to-human transmission.
• Earlier this year, Ecuador confirmed its first case of human transmission of bid flu in a 9-year-old girl. Global health officials have said the risk of transmission between humans is low, but vaccine makers have been preparing bird flu shots for humans "just in case."

(Source: Reuters)

• Canadian Finance Minister Chrystia Freeland's promise of a fiscally prudent budget in the face of high inflation has disappointed some strategists who had hoped for spending restraint from the Liberal government.
• Increased spending in the budget leaves the government with less in reserve to deal with a possible economic downturn and it could forestall a shift to interest rate cuts by the Bank of Canada, analysts said.
• The worry is that the deficit, estimated at C$43Bn ($31.7Bn) in 2022-23, or 1.5% of GDP, is wider than it should be at this point of the economic cycle, with the economy running hot, unemployment at a near record low and inflation elevated, analysts said.
• Earlier this month, the central bank paused its tightening campaign after eight consecutive rate hikes to tackle price pressures. Money markets are betting it will shift to cutting interest rates over the coming months after recent stress in the global banking sector raised prospects for a credit crunch.

(Source: Reuters)

• The Bank of England on Wednesday told regulators to move fast to toughen rules for funds used by Britain's pension industry which nearly collapsed last year after former Prime Minister Liz Truss' "mini-budget."
• The BoE said Britain's banking system was not at risk from the kind of turmoil that has beset some banks in the United States and Switzerland's Credit Suisse. However, the BoE's Financial Policy Committee called on pension regulators to act "as soon as possible" to mitigate the risks posed by liability-driven investment (LDI) funds.
• The BoE was forced to launch a new round of government bond purchases after the announcement by Truss' government of major unfunded tax cuts last September triggered a surge in gilt yields and a spiral of collateral calls and further bond sales.
• LDI funds should set aside enough liquidity to ensure they can withstand a surge in government bond yields of at least 250 basis points on top of other protections against market swings, the BoE said on Wednesday.
• In practice, LDI funds, which are widely used by pension schemes to ensure payouts to pensioners, will have to permanently hold liquidity buffers of around 300-400 basis points, as they have had to do after the mini-budget crisis.
• The Financial Policy Committee (FPC) also said there is a need to toughen the resilience of money market funds (MMF), used by companies for day-to-day financing, and UK regulators will publish a consultation paper on MMF regulation later this year.
• The central bank will also set out in the second quarter details of its first "exploratory scenario" to investigate how banks and non-banks react collectively to market stresses. The move is the latest sign of how central banks are taking a closer look at non-banks, which are regulated by securities watchdogs which have traditionally resisted such moves.

(Source: Reuters)