Mexico's economy to shrink 7.6% this year: UBS

FILE PHOTO: People walk past a building undergoing construction in Mexico City, Mexico January 30, 2020. REUTERS/Andres Martinez Casares

MEXICO CITY (Reuters) - Mexico’s economy will shrink 7.6% in 2020, more than double a previous forecast, and its “policy response to the coronavirus is among the weakest anywhere in the world,” according to UBS.

The Swiss bank’s revised forecast, from a 3.5% decline predicted earlier for Latin America’s No. 2 economy, would mark a bigger annual nosedive for Mexico than anything seen during the 1980s debt crisis, the so-called Tequila crisis in 1995, or the 2007-2009 global financial crisis.

In a note to clients, UBS also said U.S. economic growth would fall 6% in 2020, putting a damper on Mexico’s key manufacturing export sector.

“More so than any other previous crisis Mexico has been hit by, this is one where global demand will be simultaneously impaired,” UBS said.

It said the Bank of Mexico had room to cut the monetary policy rate and predicted a rate of 4.25% by the end of the year. The central bank announced its biggest rate cut in six years in an out-of-cycle move on March 20, and pledged support for financial markets to cushion the economy from coronavirus fallout.

Mexico’s benchmark interest rate currently stands at 6.50%.

“Although lower interest rates may not bring much economic relief in a country with low credit penetration, we remain of the view that credit remains an important part of the response to the current crisis,” UBS said.

The bank did not elaborate on its criticism of Mexico’s response to the coronavirus crisis. But the country’s most powerful business groups have said current government plans fall short, with more needed to protect jobs and companies.

Reporting by Abraham Gonzalez; Writing by Anthony Esposito; Editing by Tom Brown