IMF also reduces Mexico's growth forecast

The Government of Mexico adjusted its projection of economic growth to the downside for 2019. Image: Pixabay
The Government of Mexico adjusted its projection of economic growth to the downside for 2019. Image: Pixabay

The International Monetary Fund (IMF) cut its growth forecast for the Mexican economy, projecting that it will remain below two percent this year and 2020, due to uncertainty about the direction of the new government's policies.

In its report "Perspectives of the world economy" released on Tuesday, the international agency projected that the Mexican economy will now grow 1.6 and 1.9 percent in 2019 and 2020, respectively, a slowdown from the advance of 2.0 percent last year.

This new estimate for 2019 is lower than the 2.1 percent made in last January's report and 2.5 percent in October of last year, while the 2020 estimate is below the previous projections, of 2.2 and 2.7 percent. one hundred, respectively.

"In Mexico, growth is now projected to remain below 2.0 percent in 2019-2020, a downward revision close to 1 percentage point in both years in relation to October."

The international financial agency noted that in Mexico, market sentiment deteriorated and sovereign spreads rose when the incoming government canceled the construction of the planned airport for the capital and reversed the energy and education reforms. There is uncertainty due to the change in policy orientation carried out by the new government of Mexico.

The IMF indicated that, as in Brazil, the new projections for the Mexican economy reflect in part variations in the perceptions about the direction of policies in the new governments of both countries.

"In Mexico, where sovereign spreads have increased considerably since October, it is essential to avoid delays in the necessary structural reforms, which would generate greater uncertainty that would harm private investment and increase employment."

Continuing with the medium-term fiscal consolidation plan (and perhaps seeking an even greater reduction in the deficit) would stabilize public debt, improve confidence and create space to respond to shocks and meet the needs of spending related to the aging of the population. As long as inflation remains moderate and expectations are well anchored, monetary policy can remain accommodative, with a margin to cut rates if necessary.

Just last week, the Ministry of Finance and Public Credit (SHCP) also lowered its growth forecasts for the Mexican economy to a range between 1.1 and 2.1 percent in 2019, as well as between 1.4 and 2.4 percent in 2020.

According to the document known as "Pre-Criteria" of economic policy, these new estimates are less than between 1.5 and 2.5 percent in 2019 and between 2.1 and 3.1 percent by 2020, considered in the General Criteria of Economic Policy (CGPE) approved last December, within the economic package for 2019.

For the world economy, the IMF projected that growth will slow from 3.6 percent in 2018 to 3.3 percent in 2019, lower by 0.2 points compared to last January's estimate, to return to 3.6 percent in 2020.

The new estimate of the financial institution for Latin America is of growth of 1.4 and 2.4 percent in this year and in 2020, lower by 0.6 and 0.1 points to the projections of last January.

via Agency

ECLAC cuts growth forecast for Mexico for this year

The Economic Commission for Latin America and the Caribbean (ECLAC) updated its projections for economic growth in Mexico and adjusted its forecast for the end of this year, which fell to 1.7 percent. Last December, when presenting its annual report, Preliminary Balance of the Economies of Latin America and the Caribbean 2018, the organism anticipated growth of 2.1 percent for the Mexican economy at the end of 2019.

This adjustment is in addition to those made this month by the International Monetary Fund (IMF) and the World Bank, who reduced their growth expectations for Mexico this year to 1.6 and 1.7 percent, respectively. In December, when ECLAC fell from 2.3 to 2.1 percent its forecast for Mexico, it warned that among the main risks to the country's growth were "the perception of investors about the direction of the new economic policies", as well as a low in oil revenues and delays in the ratification of the T-MEC.

On this occasion, ECLAC also updated its growth projections for the countries of the region and reduced its estimate to 1.3 percent on average, from a previous estimate of 1.7 percent. "The main risks to the economic performance of the region for 2019 continue to be a lower global growth rate, the low dynamism of world trade, and the financial conditions facing emerging economies," he said in a statement.

By subregions, estimated that economic activity in South America will accelerate to 1.1 percent, while Central America will grow 3.1 percent, with declines in most countries, this due to a further slowdown in the United States, something that affects " not only to trade but also to remittances that are directed towards this sub-region ". Among other risks to growth, the agency cited the trade war between the United States and China, concerns about the evolution of China's economy, and uncertainty in certain processes with geopolitical and economic importance, such as Brexit.

What is happening with the economic growth of Mexico

The Government of Mexico adjusted its projection of economic growth to the downside for 2019, as a consequence of the economic data recorded during the last quarter of last year.

According to the report released this week by the Ministry of Finance, the expected Gross Domestic Product (GDP) expansion was reduced to a range between 1.1 to 2.1 percent, below 1.5 and 2, 5 percent that had been anticipated for this year
For its part, the World Bank (WB) lowered its growth forecast for Mexico this year from the 2 percent estimated January to 1.7 percent, according to the semi-annual report published Thursday by the multilateral agency.

GROWTH EQUAL TO INVESTMENT

To achieve growth in any sector of the economy, of any country, investment is required, both in the public and private parts, and when speaking of investment in the strict sense, it is expected that the result will become a promoter. of growth and development of different indicators.
There are several factors that, when included, generate economic certainty, the fight against corruption is one of the main axes of the policy of the new Government of President Andrés Manuel López Obrador, the advances that occur in this matter will undoubtedly increase confidence in the population and in the markets, in the same way, asserting the rule of law and respect for legality are factors that help generate that favorable environment for investment, as reported by 'El Sol de México', the general director of the National Agricultural Council Luis Fernando Haro.

"It is fundamental that investment becomes an obsession, we must strengthen the domestic market, that investment translates into greater production of goods and services, in more and better jobs that also allow the generation of greater opportunities, increase the purchasing power of the population, greater consumption and strengthening of our market, increase exports that generate higher foreign exchange," said Haro.

For most of 2018, the local economy dealt with the uncertainty generated by the renegotiation of the North American Free Trade Agreement (NAFTA) with Canada and the United States and the presidential elections in which López Obrador triumphed in July of last year.
Hacienda noted that inflation in Mexico is expected to continue to decline during 2019 and 2020, as the effects of the high exchange volatility and the energy prices that caused its increase to dissipate.

DECELERATION WORLDWIDE

In 2019 the world economy will enter a phase of decline with a slowdown in 2020. The International Monetary Fund (IMF) estimates that for this year it is expected that 70% of the economies will slow down as we enter a cycle of a synchronized deceleration.
The Analysis Laboratory in Commerce, Economy, and Business (LACEN) calculates that the growth of the world economy for 2019 will be 2.9 percent compared to 3.5 in 2018.
Undoubtedly, Mexico must prepare for the global economic slowdown of 2020. For the current year, LACEN adjusts Mexico's growth from 1.5 to 0.9 percent, in 2018 it was 2.3, that is, the fall of the national wealth in 2019 will be of the order of 155.55 percent in relation to the previous year.

Mexico is realistic in economic estimates

The growth estimate for 2019 was reduced by four-tenths of a point, from a range of 1.5 to 2.5 percent to between 1.1 and 2.1 percent.

The current administration sends a signal to investors of its commitment to fiscal discipline and gives a more realistic view of the performance of the economy, with the adjustments made to the macroeconomic framework in the so-called "Pre-Criteria", highlighted financial executives.

The national president of the Mexican Institute of Finance Executives (IMEF), Fernando López Macari, said that "adjustments to the reality" were made by the Ministry of Finance and Public Credit (SHCP) to its growth forecasts. of the Mexican economy for this year and 2020

According to the document sent last Monday by the SHCP to the Chamber of Deputies, the growth estimate for 2019 was reduced by four-tenths of a point, from a range of 1.5 to 2.5 percent to between 1.1 and 2.1 percent, while that of 2020 fell from a preliminary expectation between 2.1 and 3.1 percent to between 1.4 and 2.4 percent, that is, seven-tenths of a point.

"We believe that these criteria are closer to reality and based on them the government and economic actors in the country need to make decisions and adjustments, foreseeing these effects," López Macari argued in an interview with Notimex.

He noted that the "Pre-Criteria" is more realistic than the forecasts made by the Ministry of Finance previously, even the growth range between 1.1 and 2.1 percent for this year is closer to the forecast of the IMEF, of 1.5 percent.

However, he said, this cut in the economic expectation also has an impact on budget revenues, so the IMEF expects to make the relevant adjustments to the expense.

The above, to maintain the fiscal discipline promised by the Executive related to achieving this year a primary surplus of 1.0 percent of the Gross Domestic Product (GDP) and not increase the Mexican government debt.

Thus, the leader of the finance executives highlighted the commitment of the Ministry of Finance, included in the Pre-Criteria, to comply with the fiscal goals approved by the Congress of the Union for this year.

"That is very important and sends a signal to investors that the government will maintain fiscal and financial discipline, and will not indebt the country or overburden the economic activity with additional taxes."

It is necessary to strengthen relations between investors, the private initiative and the government to activate business and investment plans, with which the economy of the country can be advanced.

He also said that based on statistical and historical information, the first year of government is lower growth than the previous year, so if the economy grew 2.0 percent in 2018, it is expected that the rate for this year is less than that, which is reflected in the so-called "Pre-Criteria".

This low performance of the economic activity is not entirely attributable to the Mexican government, he clarified, since currently, the global economy shows signs of deceleration, particularly the United States, which is Mexico's main trading partner, which also means that economic perspective of the country is adjusted.

"We must understand that as the global economy slows down, the Mexican economy will also slow down. To this, we must add the effect of the first year, associated with the learning curve of the new government."

The president of the IMEF considered that for this government to fulfill its commitment to growing an average of 4.0 percent during the six-year term, it is necessary that in the next five years the Mexican economy advance above that rate.

"Beyond whether it is achievable or not, we must reflect on what the Mexican government needs to do and what actions can be taken to counteract this effect immediately."

Therefore, said Lopez Macari, the first thing to do is create conditions of certainty and confidence for investors, because they are the ones with the greatest power to activate the Mexican economy.

While the federal government is making efforts to achieve this, promoting various social and infrastructure programs, this is insufficient to make the economy grow at higher rates. 

"It requires the collaboration of the private initiative and the generation of private initiative investments that can give an exponential meaning to economic growth."

It is also important to strengthen the finances of Petróleos Mexicanos (Pemex) and ensure that it has a business plan that convinces investors and holders of the debt of the oil company, as well as maintain fiscal discipline in the government, that is, "do not spend more than what is paid."

Recommended stories