November 27, 2019 / 8:07 PM / 8 days ago

UPDATE 2-Mexican central bank says economy weaker than expected and may shrink more

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By Anthony Esposito

MEXICO CITY, Nov 27 (Reuters) - Mexico’s central bank on Wednesday cut its forecast for economic growth, warning that Latin America’s second biggest economy could end the year with a slight contraction but denying it was currently in recession.

In its quarterly economic report, the Banco de Mexico lowered its growth outlook for 2019 to between -0.2% and +0.2%. It also lowered its forecast for 2020 growth to a range of 0.8% to 1.8%.

Banxico, as the bank is known, said it cut its forecast as “the latest information indicates a weakness of a greater magnitude and duration than previously anticipated, and the expectation growth in the fourth quarter of the year will be affected by lower growth of the automotive sector.”

Banxico Governor Alejandro Diaz de Leon said economic conditions in the country did not meet the U.S. Bureau of Economic Research’s definition of a recession as a significant decline in economic activity spread across the economy.

“Clearly this is a condition that does not apply today in the Mexican economy,” he said during the presentation of the report, adding that it was important to understand that “the term recession can be used with different criteria”.

Mexico’s national statistics agency revised its official GDP data on Monday, with the figures now showing the economy contracted by 0.1% quarter-on-quarter in seasonally-adjusted terms during the fourth quarter of 2018 and the first and second quarters of 2019.

According to the widely-used measure of two successive quarters of economic contraction the country entered a mild recession in the first half of 2019.

The Mexican economy has been weighed down by dwindling business confidence and an industrial slump, as well as fallout from global trade tensions, including the ongoing U.S.-China trade dispute.

This is not the first time top Mexican officials disagree with analysts and economists’ views that the economy is either already in or on the brink of a recession.

The bank underscored the need to “incentivize investment by fostering an environment of certainty and strengthening the business climate, supported by a sound and resilient macroeconomic framework founded on fiscal discipline, price stability and financial stability.”

President Andres Manuel Lopez Obrador, an exponent of economic nationalism, took office in December 2018 pledging to ramp up growth to 4% per year. Instead the economy has slowed, and he has sought to deflect criticism by saying poorer parts of Mexico have benefited more from his policies. (Reporting by Anthony Esposito; editing by Frank Jack Daniel, Rosalba O’Brien and Tom Brown)

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