Mexico central bank further slashes growth forecast for 2019

MEXICO CITY (Reuters) - Mexico’s central bank cut its economic growth forecast in 2019 for the fourth time on Wednesday, warning of global and domestic risks to investment and consumer sentiment in Latin America’s No. 2 economy.

FILE PHOTO: People walk past the building of Mexico's Central Bank (Banco de Mexico) in downtown Mexico City, Mexico February 28, 2019. REUTERS/Daniel Becerril

In its quarterly inflation report, the Bank of Mexico said pressures on the Mexican economy, which contracted 0.2% in the first quarter compared to the previous three-month period, ranged from lower U.S. industrial output, global trade disputes to uncertainty over domestic policies in Mexico.

The bank cut its gross domestic product growth forecast for 2019 to a range of 0.8%-1.8% from 1.1%-2.1% previously.

Vowing to boost growth and investment, Mexican President Andres Manuel Lopez Obrador has said the economy will expand “at least” 2% in 2019 and 3% in 2020.

The central bank maintained its view for 2020 growth at 1.7%-2.7%, but said that the balance of risks for growth remains tilted to the downside due to rising uncertainty.

“We expect activity to rebound in the coming quarters,” Banxico governor Alejandro Diaz de Leon told reporters after presenting the report.

A significant challenge for the economy is uncertainty over the credit rating of state oil firm Pemex, the bank said.

Ratings agencies Fitch and Standard & Poor’s this year cut the standalone assessment of Pemex, which is burdened by $106 billion of debt, and put it on negative outlook, inching the firm closer to a financial cliff.

Turning to the outlook on price developments, the bank said it sees inflation at 3.7% at the end of the year, versus a prior view of 3.4%. It also raised its projection for inflation at the end of 2020 to 3.0%, from 2.7% previously.

Banxico said its expects inflation to converge toward its target of 3.0% +/- one percentage point during the third quarter 2020, rather than in the first half of next year, as previously forecast.

Reporting by Noe Torres and Ana Isabel Martinez; Writing by Anthony Esposito and Frank Jack Daniel; Editing by Chizu Nomiyama and Alistair Bell