Coronavirus
ministry of finance

Government sees economy contracting as much as 3.9%

Bank of America's latest forecast is for -8% growth in 2020

The federal Finance Ministry (SHCP) is predicting that the Mexican economy could shrink by as much as 3.9% this year due to the coronavirus pandemic while the Bank of America is forecasting an even more dire contraction of 8%.

The SHCP downgraded its 2020 growth outlook from a range of 1.5% to 2.5% to between -3.9% and 0.1%.

The ministry said in a statement outlining the contents of a preliminary 2021 budget proposal that the Covid-19 pandemic has caused the global economic outlook to deteriorate “quickly and significantly” in a short period of time.

In Mexico’s case, the SHCP said that the social distancing measures necessary to contain the spread of Covid-19 will have an impact on economic activity and the country’s public finances.

It added that the government will seek to find a balance “between the necessity of supporting and boosting the economy and fiscal discipline,”explained that it doesn’t want a depletion of public resources “to worsen the macroeconomic situation.”

The government “will seek to improve the efficiency of tax collection and generate budget savings,” so that it has sufficient resources to finance its priority programs and attend to any health and economic emergencies that arise from the outbreak of Covid-19, the SHCP said.

The ministry also said that it expects the economy to recover from the effects of the pandemic in 2021, predicting growth in the range of 1.5% to 3.5%.

As is becoming his custom, President López Obrador said that he didn’t agree with the Finance Ministry’s forecast.

“I don’t agree now either. To start, there is no economic normality for obvious reasons, everything is disrupted,” he told reporters at his morning news conference on Thursday, explaining that he believed oil prices would go up and help boost GDP.

For its part, the Bank of America said that the economic downturn in the United States due to the coronavirus pandemic, plunging oil prices and the government’s declaration of a health emergency – which activated a range of stricter social distancing measures – all contributed to its prediction that the Mexican economy will contract by 8% this year.

Bank of America economist Carlos Capistrán said in a note to clients that he expects the Bank of México to cut its benchmark interest rate to 5.5% from its current level of 6.5% but added that it won’t help the economy much because of the recent depreciation of the peso.

On the bright side, the bank is predicting that the Mexican economy will recover strongly in 2021 and grow by 4.5%, helped primarily by a resurgent U.S. economy.

Source: Milenio (sp), El Financiero (sp), El Universal (sp) 

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