Itaú BBA - Monetary easing in turbulent times

Scenario Review - Mexico

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Monetary easing in turbulent times

julio 11, 2019

More uncertainty from the domestic side

For the full version with all charts and tables, please open the attached pdf file
 

• Finance Minister Carlos Urzua surprised markets with his resignation, criticizing the government harshly. AMLO reacted quickly, replacing Urzua with Arturo Herrera (previously Undersecretary of Finance) and somewhat mitigating the uncertainties surrounding future economic policies. On a separate note, AMLO’s revision of existing gas pipeline contracts with private firms could lead to a further deterioration of business confidence and of the outlook for investment.

• We revised our GDP growth forecasts to 0.8% for 2019 (from 1.0%) and 1.1% for 2020 (from 1.3%). We expect the deceleration of the U.S. economy to curb economic recovery, while external and domestic uncertainties surrounding Mexico´s economy are likely to continue to limit investment. The labor market has already begun to deteriorate, with slowing private consumption during a period of contractionary fiscal policy. 

• Despite still-high inflation, the central bank adopted a softer stance in response to the wider-than-expected output gap and looser financial conditions abroad. We now expect Banxico, conditional on diminishing uncertainty, to start its easing cycle in September 2019, reaching a rate of 7.5% by the end of this year with three consecutive 25-bp cuts. We previously expected the cycle to begin in November. 
 

João Pedro Bumachar
Julio Ruiz

 

For the full version with all charts and tables, please open the attached pdf file



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