(Bloomberg) -- Bank of America is forecasting an 8% contraction in Mexico's economy this year, a far deeper slump than the so-called Tequila Crisis of the mid-1990s.
Plunging U.S. growth, a persistently lower oil price and the coronavirus pandemic will hammer Mexico's economy this year, economist Carlos Capistran wrote in a note on Thursday.
Bank of America cut its outlook from an earlier forecast for a 4.5% contraction. Even Capistran's new forecast isn't the most bearish. According to a Banxico survey, one unidentified economist is expecting an 11.25% slump this year.
Capistran said the nation faces further credit ratings downgrades and is “very likely” to eventually lose its investment grade status. He forecasts a primary deficit of 2% of GDP this year even after the government depletes its rainy day oil fund known as FEIP.
Read More: Mexico Gives Up on Primary Surplus Goal After Coronavirus Shock
A strong U.S. recovery will help the Mexican economy eventually rebound to 4.5% growth in 2021, Capistran said.
Capistran, who correctly predicted Mexico's stagnation last year, says the central bank will likely implement two more half percentage-point rate cuts this year, taking the policy rate to 5.5%. The first of these might come at an emergency meeting, before Banxico's next scheduled meeting in May, he said.
President Andres Manuel Lopez Obrador has a rosier view and said Thursday that the impact of the coronavirus will be temporary.
“This is a transitory public health crisis, an economic one as well. A transitory crisis,” said Lopez Obrador in his morning press briefing Thursday. “That means that we're going to be out soon, that this isn't a debacle, that our strengths are much more than our weaknesses.”
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