Mexico Central Bank Boosts 2021 GDP Growth Forecast to 4.8%

(Bloomberg) -- Mexico's central bank improved its outlook for Latin America's second-largest economy, saying it will grow faster than expected this year after a recovery at the end of 2020.

In its main scenario, the central bank known as Banxico expects Mexico to grow 4.8% this year versus a 3.3% increase forecast three months ago, according to a quarterly inflation report posted to the bank's website Wednesday. The economy could expand in 2021 as little as 2.8% and as much as 6.7%, Banxico said, mentioning two other scenarios.

The bank sees inflation ending the year at 3.6%, within its target range, even after peaking at 4.5% during the second quarter of the year, Banxico said.

With the government of President Andres Manuel Lopez Obrador refusing to implement significant fiscal stimulus, Banxico has reduced interest rates rapidly to 4%, the lowest since mid-2016. It resumed cuts at its last meeting on Feb. 11 after a pause to assess inflation's path.

“We continue to see wide, negative slack” in the economy, Governor Alejandro Diaz de Leon said when presenting the report.

Inflation is well anchored in the long term, he added, while growing prices in the U.S. could affect Mexican consumer costs.

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Capital flows could be hit by the exit of JPMorgan Chase & Co.'s private banking unit and a controversial electricity bill passed by Congress this week, which seeks to favor the state utility over private companies, Diaz de Leon said.

“These could be elements associated with the reduction of capital,” he said. “It's a challenge going forward to do everything in our reach on our side through monetary and financial policy to attract and be an attractive destination for this capital.”

Mexico has been hit hard by the Covid-19 pandemic, with the country recording the world's third-largest number of reported deaths. Lopez Obrador tried to balance the need to contain the disease with not imposing strict lockdowns when about half the population needs to work to eat each day.

The economy declined 8.2% last year, its biggest contraction in almost a century.

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