MexECON Blog

Central Bank Chief Warns of Slower Growth

In an interview on Friday, Banco de México Chief Carstens warned that if the U.S. economic slowdown continues, Mexico's gross domestic product (GDP) could grow just 3.5% to 3.7% in 2011.  That would mark a significant slowdown from this year.  In the second quarter of 2010, Mexican GDP was up a robust 7.6% from the same period one year earlier, and authorities ranging from the Ministry of Finance to the International Monetary Fund say growth in full-year 2010 will come in at 4.5% or more.  Carstens also said Mexican inflation at the end of 2010 should come in lower than the central bank's current official forecast of 5.0% to 5.25%.  He gave no guidance on when the monetary policymakers will next adjust their benchmark interest rate, which is currently at 4.50%.

Comment:  Carstens is right that a continued slowdown in the United States poses a significant risk to the Mexican recovery.  That risk has been a repeated theme of this blog for some time now.  However, Carstens may be downplaying the risk.  The boost from exports has been such a large part of the Mexican recovery that, if it stalls out, Mexico's economic growth could slow even more than Carstens predicts.  Besides, "base effects" alone will make it hard for Mexico to sustain its current strong growth rate.  The Mexican economic recovery still looks more likely to continue than to peter out, but there is a significant risk that the country's growth will slow substantially in the face of flagging growth north of the border.

Patrick Fearon, CFA
Vice President, Fund Management

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