Mexican Peso Weakens As Economy Contracts In Q1, AMLO Dismisses Concerns

The Mexican peso weakened against a basket of currencies towards the end of the trading week after the economy contracted in the first quarter. Despite the deceleration across the country, the peso is still one of the best performing currencies so far this year. Could it hold up after a plethora of forecasts suggest the Mexican economy is in store for a rough period?

In the first quarter, the gross domestic product (GDP) fell 0.2% as services activity slipped, which surprised analysts because this sector had been the lone bright spot for several quarters. The GDP rose 1.3% from the previous year, down 1.7% at the end of last year. The official numbers will come out at the end of May, but the incumbent president is already blaming his predecessor, former President Enrique Pena Nieto, for the disappointing economic numbers.
President Andres Manuel Lopez Obrador promised to grow the economy by 4%, though he does have an uphill mountain to climb. The country suffers from a wide variety of problems, from crime to a timid rule of law to weakening crude oil output and falling private investment.
For the time being, he is blaming “conservative analysts” for trying to undermine his agenda.

Our adversaries are betting that things are going badly, day in and day out. They’re talking about economic stagnation, that the government is not working. In fact, we are doing well, very well.

I would just like to remind you of the first quarter of the Ernesto Zedillo administration when the economy shrank by 7%. Even so, the conservatives consider that administration a success. .. . So, bravo! We’re doing very well.

To achieve the president’s aims, many experts anticipate the central bank will slash interest rates at the end of the year to spur inflation and economic growth. Today, rates are at a decade-high of 8.25%.
But many economists are not optimistic that Mexico will advance its economy.
Writing in a recent report, the Organisation for Economic Cooperation and Development (OECD) expects Latin America’s second-largest economy to weaken for the remainder of 2019 and then rally next year. The OECD forecasts GDP growing 1.6% this year and 2.0% in 2020.

Growth will strengthen moderately in the medium term. Investment will recover on the back of planned infrastructure projects complemented with institutions conducive to private investment.

This is in line with what the International Monetary Fund (IMF) projected last month in its World Economic Outlook. The IMF lowered its forecast for Mexico’s GDP to 1.6% for 2019 and 1.9% for 2020.
The USD/MXN currency pair surged 0.58% to 19.1047, from an opening of 18.9954, at 17:42 GMT on Thursday. The EUR/MXN soared 0.42% to 21.3525, from an opening of 21.2679.

If you have any questions, comments, or opinions regarding the Mexican Peso, feel free to post them using the commentary form below.

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