Itaú BBA - Stagnant economy means easing cycle will continue

Scenario Review - Mexico

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Stagnant economy means easing cycle will continue

Fevereiro 7, 2020

AMLO achieved responsible fiscal results so far


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• AMLO’s administration met fiscal targets by using resources from the rainy-day fund, aided by a slow implementation of expenditures. Looking ahead, we believe that managing the fiscal accounts will be complicated by weak economic activity, the challenge of increasing oil production and diminished fiscal buffers.

• The flash GDP estimate for 4Q19 suggests that the economy was stagnant in 2019 overall, contracting by 0.1%. We now expect economic activity to recover more gradually in 2020, growing by 0.9% (we previously estimated 1.1%). An improvement from last year is still expected due to the fading effect of the government transition on fiscal spending and the approval of the USMCA in the U.S. Congress, which reduces uncertainty.

• We expect Banxico’s monetary policy rate to reach 6.00% by the end of 2020, with the first 25-bp rate cut of the year coming at the February meeting. Low headline inflation, a widening output gap and a stronger Mexican peso support gradual rate reductions. However, persistent core inflation and latent inflationary risks (such as the minimum wage hike) may prompt the bank to ease in a gradual, stop-and-go approaches.
 

João Pedro Bumachar
Julio Ruiz



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



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