Mexico Takes Another GDP Hit

Mexican Real GDP fell by 11.1% year-on-year (yoy) in May, up from -8.2% yoy during Q1 and -12.0% yoy in April. On a month on month seasonally adjusted basis, real GDP declined 1.0% from April, says Goldman Sachs, which notes that this follows 1.3% and 0.4% declines in March and April, respectively. The decline was less than the 13% contraction predicted by Goldman, but it still expects an 8.4% contraction in the full year. “Banxico will substantially downgrade its real GDP growth forecast for 2009, and may also reduce its inflation forecast path for 4Q2009 and 2010,” says Goldman. However, Goldman notes that there is a fair chance that May will mark the bottom of the current real business cycle given the gradual normalization of services related activity in June post the swine flu infection peak and accommodation in the inventory/industrial sector. The shrinkage comes amid growing bearishness about Mexico and talk that it may be downgraded. “After basking in the glow of the high grade world for the better part of the past decade, the Mexican sovereign and its wide range of corporates are now firmly ensconced in the universe of risky assets,” says Walter Molano, research director at BCP. “Any progress on structural reforms in the new congress is likely to be slow and modest,” says Citi in an equity report. “As a result, we expect a downgrade of Mexico’s credit rating by one or more agencies before year-end,” it adds.