Thursday, June 13, 2024

Bank of México slashes its 2019 growth forecast from 2.2% to 1.6%

The Bank of México (Banxico) yesterday slashed its 2019 growth forecast for the national economy, citing an investment slowdown and recent fuel shortages, rail blockades and strikes among the reasons for its revision.

In its fourth-quarter report, the central bank predicted GDP growth of between 1.1% and 2.1% this year – a mean of 1.6%.

The mean is 0.6% lower than that forecast by Banxico in its previous quarterly report when it predicted 2019 growth in the range of 1.7% to 2.7%.

Yesterday’s downward revision was the third consecutive cut the bank has made to growth forecasts in its quarterly reports.

Banxico also trimmed its outlook for 2020 to between 1.7% and 2.7% growth compared to a range of 2% to 3% in its last report.

“Fuel distribution problems; the railway interruption; labor conflicts, particularly in Matamoros and the north of the country; and reduced petroleum production as well as persistent and more pronounced investment sluggishness. These are the elements that result in the revision to the [2019] growth forecast,” said Bank of México governor Alejandro Díaz de León.

The Banxico chief told a press conference that downward trending investment is particularly concerning given its importance to Mexico’s economic well-being.

In its report, the central bank said that if the “current mood of uncertainty that has been affecting investment” continues or deteriorates, more companies will postpone or abandon their investment plans and consumers will reduce their spending.

Another downgrade to the credit rating of Pemex or other state-owned companies would also place increased pressure on growth, Banxico said.

“We think it’s really important to try to protect the ratings and the ratings levels, including both the sovereign rating and those of the various [state] companies,” Díaz de Leon said.

The central bank warned last week about the risk Pemex poses to government finances while financial analysts and institutions have also signalled that the state oil company’s debt – in excess of US $100 billion – is placing pressure on Mexico’s sovereign rating.

In order to increase confidence and certainty and make Mexico a more attractive place for investment, Banxico said, the federal government needs to outline a clear agenda to improve security and the rule of law and to combat corruption and impunity.

The bank also said that it expects slightly slower inflation of 4.1% in the first quarter of 2019 and maintained its outlook for the fourth quarter of the year at 3.4%. The inflation rate will reach the 3% target in the first half of next year, Banxico said.

In the context of the central bank’s prediction of lower growth, economists at the bank Banorte predicted that in June Banxico would cut its benchmark interest rate, which is currently at a 10-year high of 8.25%.

“We expect Banxico to cut the rate by 25 basis points at its meeting on June 27. Additionally, it could cut a total of 50 to 75 points in 2019,” they said.

Source: El Financiero (sp) 

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