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Fitch cuts 2019 growth forecasts for Mexico, Brazil amid drop in global outlook

Fitch Ratings cut the GDP growth forecasts of Mexico and Brazil for 2019 as the economies in both countries slowed during the fourth quarter of 2018.

The sharp slowdown in Mexico's economy during the period drove the rating agency to lower its GDP growth forecast to 1.6% from 2.1%.

Uncertainty in government policies brought about by the new administration of President Andrés Manuel López Obrador that took office in December 2018 contributed to weaker business confidence, the rating agency said. Government spending also slowed down more than usual in the early stages of a presidency, the report said. The rating agency in October 2018 dropped the outlook on the country to negative from stable on the heels of AMLO's decision to cancel an airport project for Mexico City.

Fitch also noted a slowdown in job generation within the formal sector. Meanwhile, Mexico's central bank also lowered its GDP growth forecast range to between 1.1% and 2.1%. Transitory factors such as fuel shortages and strikes partly contributed to the slowdown.

Over in Brazil, Fitch lowered its 2019 growth forecast to 2.1% from 2.2%, on the heels of a deceleration in the economy during the fourth quarter of 2018. GDP grew only 0.1%, while full-year growth was at 1.1%. This is lower than Fitch's estimate of 1.3% for the entire year.

Fitch noted that while the new government of President Jair Bolsonaro has taken a market-friendly stance that has helped to ease uncertainty and lower the spreads on sovereign credit default swaps and bond yields, growth will still depend on how his administration will actualize policies, especially pension reform.

Fitch's global growth forecast for both 2019 and 2020 is now at 2.8%, lower than the previous forecasts of 3.1% and 2.9%, respectively. Fitch noted the possibility of weaker demand in emerging markets as having contributed to lower global industrial production and world trade. The rating agency noted that despite the downtrend, global recession is not in sight.