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Mexico flags GDP contraction risk from coronavirus, vows more support


By Sharay Angulo

MEXICO CITY (Reuters) - Mexico's economy is forecast to contract by as much as 3.9% in 2020, the finance ministry said on Wednesday, in an annual economic report used to guide the budget, adding that the numbers incorporated a "drastic" impact from coronavirus.

It put an upper limit of 0.1% on its forecast for growth, saying a rebound next year could be between 1.5% and 3.5%.

Wednesday's announcement promised more measures to tackle the impact of the fast-spreading pandemic, after President Andres Manuel Lopez Obrador vowed steps to help out small businesses and workers.

Annual inflation is forecast to reach 3.5% by the end of 2020 and 3.2% in 2021, while the price for Mexico's main export crude is forecast to rebound from current historic lows to $24 per barrel in 2020 and $30 per barrel in 2021.

These forecasts "incorporate the effects of a drastic shock on the economic scenario of Mexico and the rest of the world, derived from the pandemic," the ministry said.

It reiterated a promise of fiscal discipline, saying, "The Mexican government's strategy seeks a balance between the need to support and boost the economy and fiscal discipline."

Mexico's stock market and peso currency have been battered as countries around the world adopt ever tougher measures to contain the pandemic that has killed tens of thousands and infected hundreds of thousands more.

National oil company Petroleos Mexicanos, or Pemex [PEMX.UL], is on the brink of a downgrade to a junk status. If it were to lose its coveted investment grade rating, borrowing costs for both Pemex and the sovereign are likely to soar.

"The Mexican government reiterates the importance of Pemex as a strategic asset and evaluates additional support measures to those already implemented for this year," the ministry said.

"However, Pemex will seek to make savings as well as find alternative sources of income to face the effects on its finances of the reduction in the price of oil."

Oil output is forecast to average 1.85 million barrels per day in 2020 and 2.03 million barrels in 2021.

"The economic forecast has a high level of uncertainty amid the complexity of the epidemic, making it difficult to establish a specific growth forecast," the ministry added.

(Reporting by Sharay Angulo, Noe Torres and Anthony Esposito; Writing by Stefanie Eschenbacher; Editing by Frank Jack Daniel)

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