Bank of America cuts Mexico’s GDP growth forecast to 1%

“Mexico’s economy will slow down in 2019,” stated Carlos Capistrán, the firm’s chief economist

Bank of America cuts Mexico’s GDP growth forecast to 1%
The Bank of America has projected inflation of 4% this year and an average exchange rate of 20.50 pesos per dollar - Photo: Edgard Garrido/Reuters
English 16/01/2019 14:53 Antonio Hernández Mexico City Actualizada 14:53

The multinational investment bank division Bank of America Merril Lynch has cut its forecast for Mexico’s economic growth from 2% to 1% as a result of the United States’ economic slowdown, as well as both internal and external uncertainty factors that are likely to have adverse effects on investment.

“Mexico’s economy will slow down in 2019,” stated Carlos Capistrán, the firm’s chief economist in Mexico and Canada.

He explained that a reduction of their economic growth forecast is at least 50% due to the U.S. economic downturn, which has resulted in a U.S. GDP growth forecast of merely 2.5%.

The remaining 50% is due to uncertainty regarding Mexico’s implementation of economic policies as well as the cancellation of the New Mexico City International Airport (NAIM) in Texcoco, which has raised doubts among investors. The Bank of Mexico’s restrictive policy and an austere budget for 2019 have also influenced the decision to cut this year’s growth forecast.

“The Mexican administration’s most recent actions are wise, though they will have a short term effect on the country’s growth,” he explained.

According to Capistrán, this growth will not be perceived by the bulk of the population since it will have a minimal impact on consumption and job creation. The firm pointed out that the forecast for the country’s economic growth in 2019 does not imply a setback for Mexico’s credit rating.

The specialist claimed that there is a possibility for a larger economic expansion should the government react accordingly and enhance financial performance.

In a press conference, President Andrés Manuel López Obrador claimed that the forecast lacked seriousness. “I accept the challenge. They say 1% and I say more, I say we can double that. In the end, we will see who was right,” he commented.

The Bank of America has projected inflation of 4% this year and an average exchange rate of 20.50 pesos per dollar.

Regarding the current appreciation of the exchange rate, the specialist pointed out that investors were looking for markets with good yields for their financial resources and Mexico’s rates now offered yields of 4.5% after inflation.

He added that the Mexican government’s policy to fight fuel theft was a step in the right direction since it has not affected economic growth nor inflation levels.

Capistrán commented that, last week in New York, investors associated with Pemex directors had expressed doubts about the state-owned company’s financial plan during the present administration.

The economist attended the meeting and explained that the businessmen were expecting more details on how the oil company would meet all its goals, as well as details regarding investment in refineries and the possibility of fuel imports being reduced.

“Investors expected to see a yearly business plan and were disappointed to find that there was none. What we need from Pemex is a specific business plan and not just numbers from the Finance Ministry’s budget,” he stated.
 

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