MEXICO CITY, March 18 ― Credit Suisse sharply lowered its forecast for Mexico's economic performance this year and now expects a 4.0 per cent contraction, according to a note sent to the bank's clients yesterday, adding to a series of downgrades since the coronavirus spread.
Previously, the bank estimated that Mexico's real gross domestic product (GDP) would grow by a modest 0.7 per cent in 2020.
Credit Suisse said the Mexican government could end up lowering a budget surplus target for this year in order to accommodate more spending to address disruptions arising from the coronavirus outbreak.
Latin America's No. 2 economy had already been stung by weak investment since last year due in part to uncertainty over the policies of President Andres Manuel Lopez Obrador.
Mexican GDP shrank by 0.1 per cent last year, the first annual contraction in a decade, and Lopez Obrador's first full year in office.
Late last week, Barclays investment bank said that the economy in 2020 will likely be weaker than last year, also citing expected coronavirus disruptions. Barclays cut its GDP forecast for Mexico to a contraction of 2 per cent from a prior estimate for 0.5 per cent growth.
Others, including Moody's Analytics, Capital Economics and Goldman Sachs, have also issued negative forecasts.
Credit Suisse flagged falling industrial and service output, in addition to an expected fall in crude production from state oil company Pemex triggered by slumping prices, as the main drivers for the downwardly revised estimate.
“We had warned that the previous 0.7 per cent growth forecast was subject to significant downside risks, which appear to be materialising,” the bank said.
It added that it sees real GDP declines in Mexico of 1.9 per cent and 3.6 per cent in the first and second quarters of this year, respectively, while also anticipating that the central bank will slash its benchmark interest rate from the current 7.0 per cent to a rate “closer to 5.0 per cent” possibly prior to the monetary policy meeting scheduled for March 26. ― Reuters