Investment analyst skeptical of Mexican growth forecast

Although Mexico’s government is predicting 4.6 percent gross domestic product (GDP) growth in 2021, a recent analysis by Moody’s Investors Service reportedly sees 3.5 percent growth or lower as more likely.

According to a mid-January article by Reuters, an analysis issued by Moody’s says a Mexican government budget that is relying on 4.6 percent GDP growth to calculate its tax intakes is “relatively optimistic” and likely did not foresee the lingering effects of COVID-19.

Reuters quotes the Moody’s analysts as writing, “The pandemic has exacerbated the negative growth trends that had become evident in 2019 and that will persist beyond 2020.” The financial information company also points to “negative business sentiment and weak investment” levels as drags on Mexico’s economy in 2021.

The analysis was issued about two weeks before it was announced that Mexico’s President Andres Manuel Lopez Obrador had himself contracted COVID-19. After that diagnosis, a New York Times article included speculation as to whether the somewhat virus-skeptical president would begin to take COVID-19-related restrictions more seriously.

“For nearly a year, President Andrés Manuel López Obrador had minimized the pandemic, claiming that religious amulets protected him, refusing to wear masks and even drinking from the same clay pot as supporters,” wrote Times correspondents Maria Abi-Habib and Oscar Lopez. Add the duo, “But in Mexico, some public health experts fear their leader will go more the way of former President Donald J. Trump, who beat the virus last year and then continued to play down the pandemic and undermine health officials’ recommendations.”

In the Moody’s analysis written before how President Obrador responds to his diagnosis was a consideration, that report’s authors describe his economic stewardship overall by indicating that his “policy decisions have hurt business morale and will likely impact private investment for years,” according to Reuters.

It is among the factors that cause the Moody’s analysis to peg 3.5 percent as a more accurate target. But the company adds, two weeks before Obrador’s own positive test, “that forecast will need to be cut if the government is forced to carry out significant shutdowns.”

Metals producers and recyclers in the nation may take heart in the more than $11 billion in infrastructure spending that has been approved by the Obrador government.

A Moody’s podcast posted to the firm’s website points to similar problems in the entire Latin American region in 2021. Moody’s says in that podcast, its staff members Jaime Reusche and Gabriel Torres “discuss our negative credit outlook on Latin American sovereigns. Although we expect the region to broadly return to GDP growth in 2021, economic revival will take time, and pressure on governments to boost spending on social programs will build in the wake of the coronavirus crisis.​​”