Bank of Mexico Improves its GDP Forecasts in 2020

The Bank of Mexico has published this Wednesday its quarterly report for the months of July and September, where it has updated its forecasts for the Gross Domestic Product (GDP) of the Aztec country this year, with an improvement of 3.5 percentage points, passing from a contraction of 12.8% forecast in August to one of 8.9%.

In the report where it presents several macroeconomic projections, the central bank has projected GDP growth of 3.3% and 2.6% for 2021 and 2022, respectively.

The institution explained that the central scenario of its forecasts points to a gradual recovery, at a moderate pace, which would reflect the gradual recovery of the global economy, as well as the “caution of consumers and investors in the face of an environment of marked uncertainty derived from development of the pandemic and its effects on the economy “.

The report also points to other factors that will affect the recovery, such as the sectorial heterogeneity in the reactivation process and the relaxation of mobility restrictions to contain the spread of the viral outbreak.

However, the issuing institute has also warned of the uncertainty subject to these forecasts where various scenarios could be generated. The most optimistic would see a drop of 8.7% in 2020 and growth of 5.3% and 2.7% in 2021 and 2022, respectively; while in the most pessimistic one where the GDP of 2020 would contract by 9.3%, while for 2021 and 2022 the growth would be 0.6% and 3.8%, respectively.

These scenarios will largely depend on an effective treatment or an available vaccine, which will affect the rate of normalization of economic activity, according to the agency. In addition, the institution warns that the performance of the economy will be subject to ups and downs, since moving forward the dynamics will respond less and less to the reopening of various activities and more to the behavior, probably differentiated, of the components of demand and productive sectors.

Taking this into account, the Bank of Mexico emphasizes that in the central scenario of projected economic activity, the level observed at the end of 2019 (prior to the pandemic) would not be recovered until the end of 2023. In the event that the More optimistic forecasts, pre-pandemic levels could arrive towards the end of 2022.

job
Regarding employment, the institution has indicated that although there is a high degree of uncertainty regarding the evolution of the number of jobs affiliated to the Mexican Social Security Institute (IMSS), it is expected that in 2020 between 850,000 and 700,000 jobs will fall .

For its part, the forecasts for 2021 point to a recovery of between 150,000 and 500,000 jobs, while for 2022 the recovery of employment would range between 300,000 and 500,000 jobs.

Inflation
On the inflation side, the Bank of Mexico expects that the increase in annual headline inflation to date will be transitory and that in the period between 12 and 24 months it will be around 3%. This adjustment in the trajectory is explained by the expected evolution of energy prices.

For its part, in the underlying component, that is excluding the prices of energy and food, the Aztec body has indicated that although from August to October slight upward pressures have been perceived, in the first half of November there were significant reductions in prices. Consequently, core inflation is also expected to be around 3% over the 12-24 month horizon.

At the same time, the issuing institute has indicated that there are downward incidences for inflation forecasts, such as lower inflationary prices at a global level or an appreciation in the exchange rate. In turn, the upward influences on the forecasts would come from the persistence of core inflation at high levels or episodes of exchange rate depreciation, among others.

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