The Day at a Glance | July 28 2021

The Top

*IMF forecasts growing difference between advanced and emerging economies; it warns about the risk of persistent inflation.

*Moody`s downgrades PEMEX`s credit rating to “Ba3” with a negative outlook.

*The FED will make a monetary policy decision this afternoon (1:00 pm Mexico City time).

*COVID-19: CDC suggests using facemasks in closed spaces in the United States; deaths in the UK accelerate to their highest level since March.

Economic environment

The International Monetary Fund updated its global growth forecasts. In its quarterly global economic outlook update, the IMF left its 6% growth forecast unchanged for 2021; and growth in 2022 was adjusted upwards to 4.9% (vs 4.4% prev.). Even though the figures show minor adjustments, there were relevant changes. Growth among advanced economies was revised upwards 0.5%, while a downwards adjustment was made regarding emerging economies in the same magnitude, only downwards, especially in Asia. The IMF assures that these differences respond to the risk of the virus`s new variant that is spreading around the world, with 40% of the population in advanced economies already vaccinated, while in the rest of the world, the figure is set at 11% – and the percentage is even lower among low-income countries. Additionally, less fiscal aid has been allocated to overcome the crisis and a less accommodative monetary policy stance has been carried out in some emerging countries (Brasil, Russia, Mexico, Hungary, Turkey) in order to control inflation; these factors contribute to a slower rate of growth outside advanced economies. Under these circumstances, risks to global growth are skewed downwards. Lastly, regarding inflation at a global level, the IMF reiterated that it expects it to be temporary as the pandemic`s effects on prices and high levels of unemployment are still seen around the world. However, it warned that these expectations are filled with uncertainty as disruptions among productive chains and growing housing prices could make inflation more persistent. This increases the risk of seeing a reassessment in advanced countries` monetary policies and an adjustment among financial conditions at a global level that could impact emerging countries even more.

Moody`s downgrades Pemex`s credit rating. The international credit rating agency downgraded Pemex`s credit rating to “Ba3”. The decision was based on the risk of liquidity and a growing business risk, with high levels of debt maturities that coincide with efforts of trying to improve the refinery`s capacity. For Moody`s, the strategy to increase the refinery`s capacity would imply losses in the short and medium terms; even despite the state-owned company`s success in stopping the fall in crude oil production in recent years. Moody`s expects the federal government to continue backing the company by funding its cash requirements, something that continues to affect Mexico`s sovereign debt and maintains a negative outlook for both entities.