1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 10
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
Meanwhile, local firms may feel less constrained in their hiring and investment decisions without
the looming threat of significant wage, employee benefit, and tax hikes or transformative reforms
(e.g., labour and pension changes) that affected their businesses under the now-departing
administrations; in some countries, natural resource policies have also posed a hindrance.
Brazil punches well above its GDP weight in MSCI Latam
100%
80%
60%
40%
20%
0%
LatAm and Caribbean GDP share (2024)
Brazil
Mexico
Chile
MSCI EM Latam share
Peru
Colombia
Other
Source: MSCI, IMF, Scotia Wealth Management.
From abroad, the investment appeal of LatAm on the back of shifting political tides heavily
depends on the outcome of Brazil’s elections, which remain wide open. Brazil’s importance
cannot be understated. The country represents about a third of LatAm and Caribbean GDP,
about 5 percentage points (p.p.) more than Mexico’s share and with significantly deeper
economic ties with its regional peers. More importantly, its companies make up nearly 60% of the
MSCI Emerging Markets Latin America Index, the leading regional equities benchmark – more
than twice the 27% share commanded by Mexican names and dwarfing Chile’s (7%), Peru’s (5%),
and Colombia’s (2%) slices of the pie. Brazilian growth is seen a touch under 2% in 2026 as fiscal
support measures offset weakness in investment and hiring, weighed by highly restrictive policy
rates and depressed sentiment – which may worsen in the lead-up to the October election.
In Mexico, GDP growth should pick up this year, as the economy leaves behind large imbalances
due to the end of the previous administration’s massive public works and as manufacturing
output steadies at weak levels aligned with the new tariff reality. Banxico’s easing cycle, with past
and incoming rate cuts filtering through the economy, will be an offset to a challenging external
environment that will limit export growth and dampen business hiring and investment sentiment
already weakened by the government’s reformist agenda. Although faster, growth should remain
underwhelming in 2026 at no higher than a 1% pace on the back of normalizing private and public
spending and investment. Uncertainty is in high supply for 2026. At home, Banxico’s rate path will
likely clash with new sales taxes, adding to an already-precarious inflation trajectory, and Mexico’s
government will likely continue to struggle to rein in public finances and possibly consider tax
hikes.
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