March 17, 2020 / 11:24 PM / 2 months ago

Credit Suisse sharply cuts Mexico's 2020 GDP, sees economy shrinking by 4%

MEXICO CITY (Reuters) - Credit Suisse sharply lowered its forecast for Mexico’s economic performance this year and now expects a 4.0% contraction, according to a note sent to the bank’s clients on Tuesday, 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% 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% 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% from a prior estimate for 0.5% 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% growth forecast was subject to significant downside risks, which appear to be materializing,” the bank said.

It added that it sees real GDP declines in Mexico of 1.9% and 3.6% 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% to a rate “closer to 5.0%” possibly prior to the monetary policy meeting scheduled for March 26.

Reporting by Stefanie Eschenbacher; Writing by David Alire Garcia; Editing by Julia Love, Shri Navaratnam and Michael Perry

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