Macro scenario - Global

November 18, 2024

Trump 2.0: Deeper changes in the global scenario

 US: Resilient activity and the implementation of most proposals of higher trade tariffs, fiscal expansion, and
immigration restrictions – which increase inflation risks – point to higher interest rates. We now expect a smaller
cycle of interest rate cuts by the Federal Reserve (150 bps vs. 200 bps previously). Higher interest rates in the
US imply a stronger USD, posing additional challenges for EMs including Brazil.

 China: The promise of additional stimulus only partially mitigates the adverse effects of a new round of trade
tariffs. Our GDP growth projection for 2025 declined to 4.0% (from 4.5%) and we now expect a weaker currency
(CNY 7.40 per US dollar in 2025 vs. 7.10 previously).

 Europe: Additional interest rate cuts and possible fiscal palliative measures in response to global uncertainties.
Our forecast for the European Central Bank’s terminal interest rate receded to 2.00% (vs. 2.25% previously),
and we expect a weaker euro ($1.12 vs. $1.05 previously).

 Latin America: Fed’s tidal waves ripple through the region.

US: Resilient activity and more inflationary Economic activity remains strong and likely to remain
policies point to fewer rate cuts by the Fed resilient. After expanding 2.9% in 2023, the US economy
should advance 2.8% in 2024 (3.0% in 2Q24, 2.8% in
Donald Trump was elected President and obtained 3Q24, and 2.5% forecasted for 4Q24). The economy has
a majority in Congress. Markets will focus on the been supported by solid fundamentals in household and
implementation and extension of his proposals to corporate balance sheets, sustained real income growth,
increase tariffs on foreign trade, expand fiscal and by the Fed’s interest rate cuts. Even though a few
policy and restrict immigration, which tend to have metrics slowed down, job creation’s moving averages
inflationary effects from January onwards. We remain firm (see chart). Inflation continues to decelerate
assume that the new administration will be able to gradually and should run at a moderate pace in the short
implement many of his proposals, which, in addition to term, responding to slowing wages and normalizing
the inflationary effect, will likely increase, at least inventories. However, medium-term risks persist due to
initially, global risk aversion. The impact on activity the agenda of the new administration.
tends to be negative, but partially offset with palliative
With resilient activity and an inflationary agenda
measures. On the one hand, tariffs tend to be negative
ahead, we have reduced our forecast for the Fed’s
for global growth and immigration restrictions tend to
rate cuts to a cycle of 150 bps (vs. 200 bps
reduce the economy's growth potential by reducing the
previously). After starting the cycle with a 50-bp cut in
workforce. On the other hand, new fiscal measures —
September and following with a 25-bp move in
including proposals to increase spending and more tax
November, the Fed was able to remove part of the
cuts for companies and social security— can
monetary constraint on the economy and maintain
contribute positively to activity and inflation, although
expansionary financial conditions (see chart). We expect
some would just mean maintaining past tax cuts
reductions of 25bps at the December, January and March
(estimates ranging from $4.5 trillion to $6 trillion; see
meetings, leading to a terminal rate of 3.75-4.0% (vs.
table 1 in the end of the text).
3.25-3.50% previously). In our view, rate cuts throughout
1H25 will likely be interrupted due to more intense
discussions about tariffs and fiscal matters. Importantly,
higher interest rates imply a stronger USD, posing
additional challenges for emerging markets including
Brazil.

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Macro scenario – Global | November 18, 2024

Underlying Job growth among local governments —which represent one of the
country's structural risks— but will not help activity in
700 700 the short term. The package did not include new short-
6mma
600 600 term fiscal stimulus, but still conveys that strong fiscal
500 500
measures will be adopted in 2025, such as purchasing
real estate inventories (key to stabilize declining
400 400
property prices).
300 300
200 200 The possibility of another round of escalation in
100 100 trade tariffs reaffirms the need for more
expansionary policies in 2025. We maintain our 2024
0 0
growth call at 5%, given that the stimulus delivered in
-100 ADP + Public Payroll -100
Payroll States sum the current year (not used in 1H24) will be sufficient
-200 Household Survey Payroll adjusted -200 (current data reinforce this assessment). Our projection
-300 JOLTS Payroll metric -300
Payroll realized data
for next year receded to 4.0% (from 4.5%) in response
-400 -400 to the latest announcement. In our view, the Chinese
Jan-22
Apr-22
Jul-22
Oct-22
Jan-23
Apr-23
Jul-23
Oct-23
Jan-24
Apr-24
Jul-24
Oct-24

government should adopt more fiscal measures to

ensure a smooth deceleration in economic growth and
Source: BLS and Itaú BBA to partially offset the effects of another escalation of
trade issues with the US. Meanwhile, the Chinese
currency should already reflect the uncertainties around
FCI indicates GDP ~3.5%
possible tariffs, so we have revised our CNY projection
97.0 6.5%
to 7.40 per dollar by the end of 2025 (vs. 7.10 in the
97.5
6.0% previous scenario).
5.5%
98.0 GSFCI (t-1, inv) 5.0%
GDP, rhs 4.5%
98.5 4.0% Europe: Additional interest rate cuts and
3.5%
99.0 3.0% possibility of palliative fiscal measures in
99.5 2.5%
100.0
2.0% response to global uncertainties
1.5%
100.5 1.0%
0.5%
101.0 0.0% Economic activity —still impacted by the gas shock
-0.5% and monetary tightening— could endure another
101.5 -1.0%
102.0 -1.5% negative shock related to a new round of
-2.0%
102.5 -2.5% uncertainty regarding global trade. In the first Trump
-3.0% administration, the impact on GDP reached 0.7pp
103.0 -3.5%
%, yoy -4.0%
103.5 because the region's economy is directly exposed to
-4.5%
104.0 -5.0% global trade and to China in particular. We maintained
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025

our 2024 growth forecast at 0.7% but revised our call

for 2025 down to 0.8% (previously 1%).
Source: Goldman Sachs, Haver, Itau

The negative impact on activity in 2025 should lead

to a longer cycle of rate cuts by the ECB and
China: Lower growth in 2025 as promised
consequent FX depreciation. The European Central
stimulus partially offset the adverse effects of Bank has already implemented three rate cuts this year
another round of tariff escalation and we expect another one in December. This cycle
should continue with four consecutive reductions in
The Chinese government's stimulus package came 2025, taking the terminal rate to 2.0% (2.25% in our
with disappointing details. Although the intent is to previous scenario). With higher interest rates in the US
reduce some of the structural risks, additional and additional rate cuts in the Eurozone, we have
fiscal policy support in 2025 was just a promise. revised our exchange rate projection to $1.05/EUR (vs.
The package involves recognizing hidden debt of local $1.12 in the previous scenario).
governments (RMB 6 trillion or 4.8% of GDP in three
years and RMB 4 trillion in five years), which should
imply lower financing costs. This measure is important
because it helps to address financial imbalances

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Macro scenario – Global | November 18, 2024

A possible palliative measure is to ease fiscal rules, Growth revised down for next year. In Chile and Peru,
especially in Germany. Early elections should take we revised 2024 GDP growth down for this year (2.2%
place in late March or early April, possibly changing the and 2.9% respectively) due to weaker than expected
deficit cap. The country enjoys a calmer fiscal situation activity prints, with 2025 also being revised down due to
than the rest of the region but has a more conservative lower carryover, tighter financial conditions, less growth
track record when it comes to expansionary policies – in China, and a step down in copper prices. As small
there are more doubts regarding disposition to use it open economies, both Chile and Peru stand to bear the
rather than whether there is fiscal room. The domestic brunt of a potential escalation of protectionist policies
deficit cap is 0.35%, well below the 3% established by and a more pronounced deterioration of the growth
the European Union. The debt/GDP ratio reached outlook. In Mexico, we lowered our 2025 growth forecast
63.6% at the end of 2023, slightly above the 60% to 1.0% (from 1.3%), on higher rates and a deterioration
established by the EU and well below peers such as of the domestic investment outlook, the latter a result of
France (112%) and Italy (138%). constitutional reforms; discussions on trade with the US
should keep volatility elevated in the near term. In
Latin America: Fed’s tidal waves ripple contrast, however, we raised our 2024 GDP growth
forecast in Colombia to 2.0% (from 1.8%) due to better-
through the region
than-expected activity prints and maintained our 2025
call at 2.4%.
Higher terminal rates. Changes in our international
scenario were key in revisions to our outlook for LatAm Checking all the boxes. In Argentina, while still in a
economies. Fewer cuts penciled in for the Fed, weaker fragile macro-social environment amid high inflation and
exchange rates on average, and idiosyncratic factors the effects of the stabilization program, activity
have led to a recalibration towards fewer cuts in our rebounded sequentially in 3Q24, with leading indicators
monetary policy paths through 2025. In Mexico, we still suggesting that the worst of the adjustment might be
forecast Banxico to cut by 25 bp in each of the over. As a result, we revised our 2024 forecast towards
remaining meetings this year, yet substantially a smaller contraction of 3.5% (from -4.0%), followed by a
increased our 2025 yearend policy rate call to a still 4.0% expansion in 2025 (+3.0% in our previous
contractionary 9% (from 7.5%), implying a string of scenario). The fiscal consolidation marches on and
continuous 25 bp cuts. In Colombia, the terminal rate of surveys suggest that confidence in the government
the cycle was revised to 6.5% (from 6.0%); board rebounded in October, remaining elevated despite high
turnover in Colombia in 1Q25 could eventually lead to inflation. Changes in the US could eventually facilitate
larger cuts, to be reflected in a widening of domestic access to additional external financing and investment
risk premium. In Chile, we revised to a higher terminal opportunities. The next few months will be key in
rate of 4.5% (from 4.0%), the ceiling of the neutral consolidating the disinflation path, cementing the
range, to be met at a more gradual pace, also reflecting economic recovery, while at the same time preparing the
higher inflationary pressures from second round effects. end to the crawling peg policy.
Similarly, in Peru, we now forecast an earlier end to the
cycle in 2025 at 4.5% (4.0%), with inflation expectations
having interrupted their decline above the 2% target.
While real ex ante rates are projected to remain above
neutral in Mexico and Colombia, they are projected to
edge close to or at neutral in Chile and Peru.

3
Macro scenario – Global | November 18, 2024

Table 1: Estimated fiscal impact of Trump fiscal proposals

Impact on Deficit in Impact in 2034
Fiscal Policy Agendas Fiscal Measures
10y (USD bi) (% GDP)
Decrease IRA support -650 -0.2%
Increase Defense Spending 400 0.1%
Spending
Other spending increases and cuts 250 0.1%
Total 0 0.0%
Extend TCJA-related tax cuts 4500/6000 +1.3%/+1.7%
Decrease Corporate Tax (to 15%, from 21%) 200/1000 0.2%
GOP
End taxation of Social Security Benefits 1300 0.4%
Tax Exempt Overtime Income from taxes (payroll) 1000/3000 0.6%
Exclude tips from tax 300 0.1%
Tariffs -2000/-5000 -0.6%/-1.4%
Total 5000/7000 +1.6%/+1.8%
Net Total Net Republicans 5000/7000 +1.4%/+1.7%
Source: CBO, CRFB, White House and Itaú BBA

Global | Forecasts and Data

2019 2020 2021 2022 2023 2024F 2025F

Current Previous Current Previous
GDP Growth
World GDP growth - % 2.8 -2.8 6.3 3.5 3.2 3.2 3.2 3.1 3.4
USA - % 2.6 -2.2 6.1 2.5 2.9 2.7 2.7 2.2 2.2
Euro Area - % 1.6 -6.2 6.3 3.6 0.4 0.8 0.7 0.8 1.0
China - % 6.0 2.3 8.4 3.0 5.2 5.0 5.0 4.0 4.5
Interest rates and currencies
Fed Funds - %, eop 1.55 0.09 0.08 4.4 5.3 4.4 4.4 3.9 3.4
U.S. 10 Year Treasury - %, eop 2.00 0.93 1.47 3.88 3.88 4.25 3.75 4.00 3.50
USD/EUR - eop 1.12 1.22 1.13 1.07 1.10 1.05 1.12 1.05 1.12
CNY/USD - eop 7.0 6.5 6.4 6.9 7.1 7.3 7.0 7.4 7.1
DXY Index* - eop 96.4 89.9 95.7 103.5 101.3 106.4 99.9 105.7 99.5
Source: IMF, Bloomberg and Itaú
* The DXY is a leading benchmark for the international value of the U.S. dollar, measuring its performance against a basket of currencies that
includes the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona.

4
Macro scenario – Global | November 18, 2024

Compared scenario
World Latin America and Caribbean
2023 2024 2025 2023 2024 2025
Current Previous Current Previous Current Previous Current Previous
GDP (%) 3.2 3.2 3.2 3.1 3.4 GDP (%) 2.2 2.1 2.0 2.4 2.4

Brazil Mexico
2023 2024 2025 2023 2024 2025
Current Previous Current Previous Current Previous Current Previous
GDP (%) 2.9 3.2 3.2 1.8 2.0 GDP (%) 3.2 1.4 1.4 1.0 1.3
BRL / USD (eop) 4.86 5.70 5.40 5.70 5.20 MXN / USD (eop) 16.97 20.0 19.0 21.0 19.3
Monetary Policy Rate (eop,%) 11.75 12.00 11.75 13.50 11.00 Monetary Policy Rate (eop,%) 11.25 10.00 10.00 9.00 7.50
IPCA (%) 4.6 4.8 4.4 5.0 4.2 CPI (%) 4.7 4.3 4.3 3.9 3.9

Argentina Chile
2023 2024 2025 2023 2024 2025
Current Previous Current Previous Current Previous Current Previous
GDP (%) -1.6 -3.5 -4.0 4.0 3.0 GDP (%) 0.2 2.2 2.5 1.9 2.1
ARS / USD (eop) 809 1030 1030 1350 1450 CLP / USD (eop) 879 940 910 940 870
Reference rate (eop,%) 100.0 30.0 40.0 30.0 40.0 Monetary Policy Rate (eop,%) 8.25 5.00 5.00 4.5 4.00
CPI (%) 211.4 120.0 125.0 35.0 45.0 CPI (%) 3.9 4.7 4.5 3.5 3.3

Colombia Peru
2023 2024 2025 2023 2024 2025
Current Previous Current Previous Current Previous Current Previous
GDP (%) 0.6 2.0 1.8 2.4 2.4 GDP (%) -0.6 2.9 3.1 2.8 3.0
COP / USD (eop) 3855 4300 4200 4500 4300 PEN / USD (eop) 3.70 3.80 3.80 3.80 3.80
Monetary Policy Rate (eop,%) 13.00 9.25 8.75 6.50 6.00 Monetary Policy Rate (eop,%) 6.75 5.00 4.75 4.50 4.00
CPI (%) 9.3 5.1 5.6 3.7 3.6 CPI (%) 3.2 2.6 2.8 2.5 2.5
Source: Itau

Commodities

2019 2020 2021 2022 2023 2024 2025

Current Previous Current Previous
Brent Oil (USD/bbl) 64 50 75 82 77 75 80 70 75
Iron Ore (USD/tonne) 90 153 116 110 135 110 110 85 90
Copper (USD/tonne) 7788 7788 9525 8402 8489 9500 9500 9500 9800
Corn (Usd/bu) 383 437 592 656 480 450 380 420 350
Soy (Usd/bu) 912 1207 1290 1474 1311 980 1000 950 950
Wheat (Usd/bu) 540 604 790 757 669 530 500 580 550
Sugar (Usd/lb) 13 15 19 20 22 21 21 20 20
Coffee (Usd/lb) 130 123 235 166 188 260 220 240 200
Source: BBG, Itaú

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Macro scenario – Global | November 18, 2024

Macro Research – Itaú

Mario Mesquita – Chief Economist

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