Mexico central bank slashes growth forecast to lowest since 2009

Worries over its state-owned oil company and global trade tensions will affect Latin America's second-largest economy.

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    After its first rate cut in five years, the central bank governor of Mexico, Alejandro Diaz de Leon, said policymakers will depend on data and act accordingly [Alejandro Cegarra/Bloomberg]
    After its first rate cut in five years, the central bank governor of Mexico, Alejandro Diaz de Leon, said policymakers will depend on data and act accordingly [Alejandro Cegarra/Bloomberg]

    Mexico's central bank slashed its growth forecast for this year, predicting the weakest expansion since the 2009 financial crisis amid a slowdown in demand and global and domestic uncertainty.

    Policy makers in their quarterly inflation report cut the projection for this year's expansion to a range of 0.2% to 0.7%, down from 0.8% to 1.8% previously. They highlighted domestic concern that has affected investment and consumption and potential additional deterioration in the debt ratings for the nation or state-owned Petroleos Mexicanos, as well as global trade tensions.

    Mexico's second-quarter gross domestic product was unchanged, representing a narrow avoidance of a technical recession. President Andres Manuel Lopez Obrador has pledged to increase economic growth to an average of 4%.

    The central bank cut interest rates for the first time in five years this month, by a quarter-point to 8% from a decade-high 8.25%, as inflation eased. Analysts in a survey published by Citigroup Inc.'s Mexico unit last week expect the five-member board to cut again in its next scheduled decision on Sept. 26.

    Central bank Governor Alejandro Diaz de Leon avoided making a projection about potential future rate reductions, saying that decisions will depend on incoming data.

    Asked about recent comments by AMLO, as the president is known, that the central bank overreached in its discussion of the nation's economic policy in its most recent rate-setting statement, Diaz de Leon said policy makers have been consistent in highlighting that they need macroeconomic stability in order to achieve their 3% inflation goal. He underlined the importance for Mexico's 2020 budget plan, which AMLO's government needs to present by Sept. 8, to communicate certainty to investors.

    SOURCE: Bloomberg