February 26, 2020 / 7:03 PM / a month ago

Mexico central bank cuts 2020 growth forecast, cites coronavirus risk

MEXICO CITY (Reuters) - Mexico’s central bank on Wednesday trimmed its 2020 economic growth forecast and hiked its inflation view, saying projections were shrouded in uncertainty because it is unclear how the fast-spreading coronavirus will impact global growth.

FILE PHOTO: The logo of Mexico's Central Bank (Banco de Mexico) is seen at its building in downtown Mexico City, Mexico February 28, 2019. Picture taken February 28, 2019. REUTERS/Daniel Becerril/File Photo

The Banco de Mexico, in its quarterly economic report, lowered its growth outlook for this year to between 0.5% and 1.5%, from a prior estimate of 0.8% to 1.8%.

The growing pessimism comes after the economy shrank by 0.1% in 2019, the country’s first economic contraction in a decade.

“There is a high degree of uncertainty regarding this outlook, as the Mexican economy is expected to continue facing a complex environment ... especially uncertainty regarding the possible effects of the coronavirus outbreak on world economic activity and, specifically, on global value chains,” the bank said.

Mexico is a big producer of export goods, including cars, that rely heavily on imported raw materials and components.

The new coronavirus is believed to have originated in the Chinese city of Wuhan late last year and has infected about 80,000 people and killed more than 2,700, the vast majority in China. But there have now been cases in at least 30 countries with large, spreading outbreaks in South Korean, Iran and Italy.

The outbreak has upended supply chains and hit global demand.

“This outlook anticipates a more gradual recovery of domestic demand throughout the forecast horizon, in a context in which the global economy continues showing weakness and U.S. industrial production expectations have been revised downwards once again,” the Mexican central bank said.

The bank raised its outlook for annual headline inflation for the fourth quarter of this year to 3.2%, up from 3.0% previously.

Inflation expectations have been stoked by the government’s decision in December to raise the daily minimum wage by 20%, the biggest increase in more than four decades and the second major one in as many years.

Higher-than-forecast agricultural and livestock goods prices are also fanning inflation, the bank said.

Writing by Anthony Esposito; editing by Drazen Jorgic and Leslie Adler

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