Itaú BBA - The easing cycle begins

Scenario Review - Mexico

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The easing cycle begins

septiembre 12, 2019

Responsible fiscal targets, but the risk of fiscal slippage is high


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

 

• The MoF submitted the 2020 budget to Congress with responsible fiscal targets, but the odds of fiscal slippage are high due to optimistic macro assumptions.

• We revised our GDP growth forecast for 2019 to 0.4%, from 0.6%. Weak economic activity in the U.S. is expected to drag down Mexico’s manufacturing sector. Uncertainties over the direction of domestic policy and trade relations with the U.S. are also expected to continue to weigh on investment.

• We expect Banxico to cut the policy rate by another 25 bps in September, with two additional 25-bp cuts at the subsequent meetings of 2019, bringing the rate to 7.25% by year-end. Given the poor evolution of the global economy and its impact on the Fed and on Mexico’s economic activity, we expect no pauses in the cycle in the short term. For 2020, we forecast four 25-bp rate cuts.


João Pedro Bumachar
Julio Ruiz



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



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