Sunday, June 23, 2024

Bank of México downgrades 2020 growth forecast to 0.5-1.5%

The Bank of México cut its growth forecast for 2020 on Wednesday, citing weakness in the global economy, trade tensions and the outbreak of coronavirus as factors.

The central bank is now predicting GDP growth of between 0.5% and 1.5% this year, a 0.3% cut at both ends of the range compared to its previous forecast in November.

The downward revision came a day after the National Institute of Statistics and Geography announced that GDP contracted 0.1% in the fourth quarter of last year (it previously reported that growth was 0%) and confirmed that the economy shrank 0.1% across all of 2019.

“The revision for 2020 responds, in part, to a lower growth base to that previously expected,” the Bank of México (Banxico) said in its quarterly report for the October to December period of 2019.

“This outlook anticipates a more gradual recovery of domestic demand throughout the forecast horizon, in a context in which the global economy continues showing weakness and U.S. industrial production expectations have been revised downwards once again,” Banxico said.

The central bank said that global trade tensions, such as the ongoing trade war between the United States and China, are expected to have an impact on growth and investment in Mexico.

It also said that the outbreak of the coronavirus – which is now affecting large numbers of people in countries outside China, such as South Korea, Italy and Iran – could have a greater effect on growth than previously thought.

The recovery of the Mexican economy from last year’s recession – the first since the global financial crisis in 2009 – will likely take longer than previously expected due to persistent weakness in internal demand and a possible cut to the credit rating of state oil company Pemex, which already has a junk rating from Fitch.

On the bright side, Banxico said that the new North American free trade agreement, the USMCA, could give the economy a much-needed boost.

The central bank also cut its growth forecast for 2021 albeit by a slightly more modest margin of 0.2%. The Bank of México sees an economic expansion in the range of 1.1% to 2.1% next year.

In addition, Banxico revised its expectation for job creation this year to between 440,000 and 540,000 new positions compared to a 500,000-600,000 range in its previous quarterly report. With regard to inflation, the bank is anticipating a 3.2% rate at the end of 2020 compared to a previous prediction of 3%.

Despite the central bank’s decreased optimism, Finance Minister Arturo Herrera said that the ministry he heads would not be moved into downgrading its 2020 growth outlook, which currently stands at 1.5-2.5%.

“We’re not going to lower it, we don’t depend on whether Banxico does it or not,” he said, explaining that the Finance Ministry (SHCP) uses its own models to predict growth and that any announcements about outlook revisions are made according to an established schedule.

Herrera said that the SHCP will present an economic policy document in April which could possibly include a revised growth forecast for 2020.

The minister told the news agency Bloomberg earlier this month that he was confident that the economy would bounce back this year, citing inflation and debt levels that are under control, the stability of the peso and Pemex’s halting of an extended production decline.

The SHCP’s current mean prediction of 2% growth this year, however, is about double that of most analysts and international organizations.

The International Monetary Fund is currently forecasting 1% growth in Mexico this year, while the World Bank sees GDP expanding by a slightly better 1.2%.

Source: El Financiero (sp), El Economista (sp) 

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