Mexico: Surge in new COVID-19 cases to grind recovery to halt in Q1 – Capital Economics

Reviewing the latest Gross Domestic Product (GDP) report from Mexico, “the solid 3.1% q/q rise in Mexico’s GDP in Q4 meant that the economy had recouped over 70% of its losses from the first half of 2020,” noted Capital Economics analysts.

Key quotes

“However, the recent surge in new COVID-19 cases will cause the recovery to grind to a halt in Q1. 11 of Mexico’s 32 states are now in the strictest ‘red’ tier of restrictions. Given the severe strains in the healthcare system, it’s likely that stringent lockdown measures will stay in place over the coming weeks, dragging down activity. We think that this near-term economic weakness, alongside subdued inflation, will prompt Banxico to resume its easing cycle with a 25bp rate cut, to 4.00%, at its next meeting in February.”

“That said, we’re cautiously optimistic about the outlook further ahead. Mexico seems fairly well placed to benefit from the rollout of vaccines, and we assume that most restrictions will be eased in the second half of the year. The external sector will be boosted by a strong recovery in the US too. Accordingly, we expect growth of 5.5% this year, and 4.5% in 2022. (See Chart 1) These forecasts lie above the consensus.”