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BBVA Upgrade 2021 Mexico GDP Growth Forecast To 4.7% From 3.2%

MEXICO
  • Growth - Better than expected Q4 growth print along with upwardly revised US growth forecast led the revision higher
    • For 2022, they downwardly revise their GDP forecast to 2.8% from 3.8% amid the slow vaccination process, a slower return to normal conditions and less optimism on the consumption outlook on the back of a still weak labour market.
    • Nonetheless, according to new estimates, Mexico would reach its pre-covid GDP level by Q2'23, three quarters earlier than previously expected.
  • FX – MXN Still has room to appreciate:
    • Global normalisation and a search for yield could appreciate the MXN to 19.70 by the end of the year. An expected surplus of 0.6% of GDP for the 2021 current account also supports some MXN appreciation.
  • Inflation – Banxico likely to look through temporary rise:
    • They anticipate that inflation would have peaked in April, and as the transitory effects unwind, they think that the headline inflation rate will drop down to slightly above-4.0% levels in 3Q, before rebounding temporarily again in 4Q to above-4.5% levels.
    • Banxico will not resume the easing cycle, which we expect to have ended with the monetary policy rate at 4.00%. They think that policy rate will remain at 4.00% over the coming years. This is a more dovish view compared to market expectations.
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