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Mexican Peso Weakens As IMF Slashes Growth Estimates

January 23, 2020 at 16:09 by Andrew Moran

Different denominaitons of MXP banknotesThe Mexican peso is weakening against several currencies on Thursday as the International Monetary Fund (IMF) cut its growth projections for the country. This comes as the unemployment rate fell last month to its lowest level in nearly two years and inflation came higher than expected.

Earlier this week, the IMF issued its World Economic Outlook (WEO) update and warned that Mexico’s gross domestic product (GDP) will rise just 1% in 2020, down from its 1.3% forecast in October. It also predicted that the national economy would expand by 1.6%, down from its 1.9% estimate late last year.

IMF researchers cited weak economic performance in most sectors for its bearish projection.

Should the prognostications be accurate, it would still be an improvement from last year’s abysmal record. In 2019, under the first full year of President Andrés Manuel López Obrador, the economy contracted in the first and second quarters and edged up just 0.01% in the third quarter. The fourth-quarter reading has yet to be published.

The numbers fell short of the administration’s goal of averaging 4% annual growth during his six-year term. Experts are blaming the disappointing growth on “hostile discourse” and drastic public policy changes that were threatening foreign investment.

Elsewhere on the data front, the unemployment rate declined to 2.9% in December, down from 3.4% in December 2018. It also beat market expectations of 3.5% and represents the lowest level since March 2018. The labor force participation rate climbed to 60.2%, up from 59.5% in the previous year.

The mid-month inflation rate for January clocked in at 0.27% to lift the year-over-year reading to 3.18%.

Over the next week, some major numbers will be published: economic activity, retail sales, trade, and Q4 GDP.

The USD/MXN advanced 0.57% to 18.7901, from an opening of 18.6873, at 15:02 GMT on Thursday. The EUR/MXN rose 0.1% to 20.5718, from an opening of 20.7255.

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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