Economics: A lowered outlook on multiple fronts
A review of the economic news published in March reinforces the image of a recessionary economy at a time when official policy leaves Mexico particularly exposed to the unprecedented challenges posed globally. Well before oil prices crashed, and COVID 19 and its potential ramifications began to emerge, the country’s coincident index was slipping further into negative territory, and private expenditures had been halting. That latter development has been mirrored in slumping consumer sentiment at the same time as GFI, industrial output and labor market indicators head further south.
Inflation came in higher through mid March but,when announcing a pre-emptive rate cut, Banco de México observed that the widening of the negative product gap and falling energy prices could exert downward pressures depending on the impact of a weakening peso that has depreciated by roughly 35% since late February. But the institution’s monetary policy options are highly limited, especially if it wants to continue to attract portfolio investment flows into the country to avoid a higher depreciation.
The latest public finance results are not reassuring nor are those of Pemex, and a development late last week further clouded the picture as S&P lowered Mexico’s foreign currency sovereign debt (to just two notches inside investment range), and peso equivalent. It also subjected Pemex to similar cuts and any further downgrade could push the company’s bonds into junk territory. Mexico is officially on notice of potential further cuts as S&P left Mexico on a negative credit watch, while also lowering its outlook on numerous major Mexican corporations and financial institutions.
In this context we present our revised estimates for major economic indicators for 2020-2021.
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