July 29, 2020 / 6:11 PM / 10 days ago

UPDATE 3-Mexico could return to pre-pandemic economic activity in 2022 -central banker

(Adds comments from central banker, background)

By Anthony Esposito and Sharay Angulo

MEXICO CITY, July 29 (Reuters) - Mexico’s battered economy may not recover to levels seen before the coronavirus crisis until 2022 as it is poised to suffer the biggest quarterly contraction on record, a member of the Mexican central bank’s board said on Wednesday.

Echoing predictions from independent economists, Gerardo Esquivel, one of the Bank of Mexico’s five board members, said the country’s gross domestic product could contract between 8.5% and 10.5% this year.

The bank’s deputy governor, Jonathan Heath, stressed in a separate presentation that the cycle of expansive monetary policy has not come to an end, suggesting further interest rate cuts could occur.

At the last monetary policy meeting, the bank cut the benchmark interest rate by 50 basis points to 5.00%, the lowest level in nearly four years.

Economic activity likely fell as much as 20% in the second quarter when compared with a year earlier, said Esquivel, adding that spending on tourism, transportation, restaurants and fast food have remained far below expected levels even through end-July.

Esquivel and Heath, the two board members appointed since President Andres Manuel Lopez Obrador took office in December 2018, have at times pushed for aggressive rate reductions.

The government has been criticized for not spending more, or taking on new debt, to address the crisis.

But Esquivel said in Mexico, which faces pressure on its public finances and risks losing its coveted investment grade rating, a significant increase in debt could be excessively costly.

Still, he warned against cutting spending, which could make economic recovery more difficult.

Lopez Obrador has focused his administration on reducing poverty and eradicating corruption, but the pandemic is complicating his efforts.

It could push some 9 million Mexicans into poverty and another 9 million into extreme poverty, CONEVAL, the autonomous public agency that measures poverty, has estimated.

“In the long run, this will be perhaps the most lasting and painful impact of this crisis and the one which requires more immediate attention,” said Esquivel. (Reporting by Anthony Esposito and Sharay Angulo; Editing by Stefanie Eschenbacher and Jonathan Oatis)

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