Mexico central bank pares growth forecasts, cites ratings concern

MEXICO CITY (Reuters) - Mexico’s central bank on Wednesday trimmed its economic growth forecasts for this year and next, while flagging the risk of a sovereign ratings downgrade and warning of persistent inflationary pressures.

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In a quarterly report, the bank lowered its Mexican growth forecast to between 1.1 percent-2.1 percent for full-year 2019 and 1.7 percent to 2.7 percent for 2020, echoing increasing skepticism among private sector economists on the economic outlook.

The bank had previously forecast growth of between 1.7 percent-2.7 percent for 2019, and 2.0 percent-3.0 percent for 2020.

Data published this week showed the Mexican economy grew by just 0.2 percent in the fourth quarter from the previous three-month period and contracted in December.

Weakness in domestic demand toward the end of 2018 suggested the deceleration may continue in early 2019, Central Bank Governor Alejandro Diaz de Leon told a news conference.

A persistence of recent fuel shortages, road blockades and strikes could crimp growth, the central bank said.

If the “current mood of uncertainty that has been affecting investment” endures or worsens, that would put further pressure on growth, as would a fresh downgrade in the rating of state-run companies, notably Pemex, the bank said.

“We think it’s really important to try to protect the ratings and the ratings levels, including both the sovereign rating and those of the various (state) companies,” Diaz de Leon said.

The remarks followed a warning from the bank last week in the minutes of its latest monetary policy decision about the risk state oil giant Pemex poses to government finances.

The bank said it saw slower inflation in Mexico of 4.1 percent for the first quarter, and maintained its fourth-quarter forecast unchanged at 3.4 percent.

It also estimated that headline inflation will approach the bank’s 3.0 percent target during the first half of 2020.

Goldman Sachs economist Alberto Ramos said in a note to clients that the bank’s inflation expectations suggest there is “moderate room for policy rate cuts during second half of 2019.”

The bank held its benchmark lending rate steady at 8.25 percent earlier this month.

Still, despite a recent slowdown in the headline rate, concerns about inflation expectations persist, said Diaz de Leon.

The Bank of Mexico also cited possible delays to ratification of a new free trade agreement between Mexico, Canada and the United States as an additional risk to growth.

Reporting by Anthony Esposito; Writing by Julia Love; editing by Dave Graham, Sandra Maler and G Crosse