IMF cuts Mexico’s GDP forecast to 2.1%

Since private investment is expected to decrease in Mexico, the International Monetary Fund (IMF) has anticipated an economic slowdown in the country this year, with a marginal improvement in 2020 .

Upon disclosing their World Economic Outlook (WEO) last Monday , the IMF cut Mexico’s GDP growth forecast to 2.1% .

The update for 2019 represents a 0.4% reduction since October 2018 , when the organization had predicted a 2.5% GDP growth this year.

On January 30 , the National Institute of Statistics and Geography (INEGI) will reveal their estimation for Mexico’s Gross Domestic Product (GDP) compared with 2018.

The international body led by Christine Lagarde forecast a slight progress in Mexican economy, with an estimated 2.2% GDP growth in 2020 , which represented a 0.5% reduction from October predictions.

The IMF’s new projections are partly due to the new Mexican administration’s decision to cancel the partly-built New Mexico City International Airport (NAIM), after which the government had to repurchase USD$1.8 billion in bonds issued to finance parts of the construction during the last administration.

Thus, the IMF considered that Mexico, as well as Venezuela, would drag Latin America down to a slower economic growth between 2019 and 2020 .

Mexico’s President Andrés Manuel López Obrador

said on Tuesday that the country’s economy will grow above the International Monetary Fund’s estimate for this year.

“It’s much better than what the International Monetary Fund says, that growth will be two points,”

López Obrador told a news conference. “The economy is going to grow more, their estimate will be wrong.”

López Obrador’s own budget, approved late last month, projected lower economic growth than the IMF estimate. In the budget the economy is forecast to expand 2 percent, compared with an estimated 2.3 percent in 2018 .

In their WEO, entitled “A Weakening Global Expansion,” the IMF considered that worldwide global expansion was slowing down, mostly due to “the negative effects of tariff increases enacted in the United States and China.”

In Latin America , the report claimed that expansion levels would return to normal in the next two years, growing from 1.1% in 2018 to 2% in 2019 and 2.5% in 2020 .

However, the new projections represent a 0.2% reduction for each year compared to the report issued in October 2018 .

According to the IMF, the weakening of economic expansion in Latin America is due to downward revisions of Mexico’s GDP growth between 2019 and 2020 , which reflects lower investment, and Venezuela’s economic slowdown, which is even more severe than anticipated .

A Weaker Global Economy

The report warned that global expansion had weakened. Whereas in 2018 there was an overall economic growth of 3.7%, in 2019, global economy is expected to grow at a rate of 3.5% and 3.6% in 2020 .

This downward adjustment is the result of an increase in financial risks at the global scale due to higher levels of both private and public debt .

Other factors contributing to said financial behavior include the UK’s Brexit plans, and an economic downturn in China .

Global Trade Tensions

The IMF added that the signing of the New U.S., Mexico, Canada Agreement (T-MEC) on November 30 , meant to replace NAFTA, as well as the announcement of a 90-day trade war truce between the United States and China as of December 1, 2018 were the main factors giving rise to global tensions.

However, both factors are favorable, since they are aimed at solving trade frictions, claimed the international body.

Whether the U.S. will maintain a favorable disposition to solve their trade war with China remains to be seen.

The U.S. has not yet lifted its 25% tariffs on Mexico’s steel industry

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