Macro Analysis /

1Q21 Outlook

  • We expect Mexico’s GDP and inflation at 4.1% y/y and 3.7%, respectively. Banxico would cut the rate by 75bps in 2021

  • We forecast Mexbol at 51,200pts and USD/MXN at 19.80 by year-end, with the latter reaching 19.00 by the end of 3Q21

  • We believe crude oil will exhibit an upward bias, with investors still favoring defensive sectors in corporate debt

Gabriel Casillas Olvera
Gabriel Casillas Olvera

Managing DirectorInvestor Relations Officer and Chief Economist

Manuel Jimenez Zaldivar
Juan Carlos Alderete Macal
Alejandro Padilla Santana
15 January 2021
Published byBanorte

Investors remain cautious about the current state of the economy and the resilience of governments, firms, and households in a transition towards a new post-pandemic normal, still digesting the significant challenges faced in 2020 due to COVID-19. We acknowledge that some risks are still lingering in the current backdrop (please see our research note “The ten issues to watch in 2021” for additional information). Notwithstanding this complex outlook, the relief rally in the last months of the previous year has extended to early 2021. Market participants are portraying a bullish sentiment towards the vaccination process, additional fiscal and monetary stimuli, as well as the recovery of the global economy. These factors are offsetting prevailing fears about new waves of contagion and the need for additional lockdowns in several regions.

In addition, the geopolitical landscape suggests a brighter year vis-à-vis 2020, despite several elections in different parts of the world, that will be strongly influenced by how the sanitary crisis has been dealt with. Investors are welcoming a new US administration under Joe Biden starting on January 20th, in combination with fading risks associated with Brexit as a no-deal Brexit was avoided at end of last year. The main focus will be the US, especially the first 100 days of Biden’s administration, that will rely on a Democratic majority in both chambers, allowing a faster and more coordinated strategy to overcome the adverse effects of Coronavirus and the aftermath of Trump’s presidency (e.g. China, international trade, climate change). Moreover, markets will assimilate a larger fiscal plan that could compensate a slightly less dovish stance from the Federal Reserve.

The Mexican case is concerned with this same situation, with an economy that has also experienced the consequences of the pandemic. We expect a 4.1% recovery of GDP in 2021 –after a likely fall of -9.0% in 2020–,with parallel headwinds coming from the rise in new cases and restrictions, as the ones the world is facing. Investors will also focus on geopolitical factors, stressing out the mid-term elections and Mexico’s relationship with its most important trading partner under a new presidency. In terms of economic policy, Banxico is likely to reduce its reference rate by 75bps throughout the year, starting in the next meeting on February 11th, while the room to maneuver on the fiscal side will remain limited.