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IMF cuts its 2019 economic growth outlook for Mexico to 2.7%

NAFTA, tariffs, election results factors in reduced expectations

The International Monetary Fund (IMF) has cut its 2019 growth forecast for the Mexican economy from 3% to 2.7% due to prolonged uncertainty surrounding the renegotiation of the North American Free Trade Agreement (NAFTA).

In its latest World Economic Outlook Update, the IMF also said that “the recently announced and anticipated tariff increases by the United States and retaliatory measures by trading partners” could “depress medium-term growth prospects both through their direct impact on resource allocation and productivity and by raising uncertainty and taking a toll on investment.”

Mexico struck back swiftly after the United States announced that it would impose 25% and 10% duties on steel and aluminum, introducing its own tariffs on a range of U.S. products including pork, apples, some steel products, a range of cheeses and bourbon.

Despite introducing tit-for-tat measures on their neighbor, both Mexico and Canada also reaffirmed their commitment to reaching a new NAFTA deal but the United States hasn’t expressed the same level of support. President Donald Trump has even suggested that separate bilateral agreements could be sought with the two countries.

The IMF warned generally that “an escalation of trade tensions could undermine business and financial market sentiment, denting investment and trade.”

It also cited uncertainty about “the policy agenda” of Mexico’s new government as an additional factor that it considered in its downgraded growth forecast.

Andrés Manuel López Obrador won the July 1 presidential election in a landslide and he and his prospective cabinet have subsequently sought to calm fears surrounding the incoming administration’s economic plans.

Future finance secretary Carlos Urzúa has been particular outspoken, reassuring investors that the 2019 budget will keep the nation’s finances under control and stressing that the independence of the central bank will be respected.

In the week after López Obrador’s election, the peso recorded its biggest single-week gain in more than six years and analysts partially attributed the currency’s strong performance to the efforts to quell economic concerns. The new president will be sworn in on December 1.

For 2018, the IMF maintained its growth forecast for Mexico at 2.3%.

The intergovernmental organization also maintained its global growth projection for both 2018 and 2019 at 3.9% but noted that “the expansion is becoming less even, and risks to the outlook are mounting.”

For the wider region of which Mexico is part — Latin America and the Caribbean — the IMF is predicting 1.6% and 2.6% growth for 2018 and 2019 respectively. The former forecast was cut by 0.4% and the latter by 0.2% compared to April figures.

The IMF will announce its next World Economic Outlook Update in October.

Source: El Economista (sp)

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