In a report on Wednesday, Banco de México said it now
expects Mexican gross domestic product (GDP) to rise between 2.0%
and 3.0% in 2013, down from its previous forecast of 3.0% to 4.0%.
According to the report, the slowdown in the Mexican economy
that began in late 2012 intensified in the second quarter,
reflecting both external and domestic weaknesses. However,
Governor Agustín Carstens said he expected growth to improve in the
second half of 2013 on the force of improved U.S. demand for
Mexican exports and increased spending by the Mexican government
and consumers. The growth forecast for 2014 was therefore
unchanged at 3.2% to 4.2%.
Comment: Banco de México's new growth
forecast for 2013 is roughly in line with what other observers are
expecting. The new forecast essentially says that Mexican
economic growth this year should be close to its long-run average
of about 2.6% per year. That is a big slowdown from the
country's extraordinarily strong growth rates of the last few
years, when it was recovering from its recession in 2008 and 2009.
Some moderation in growth is to be expected, especially as
the economic cycle is now quite mature. However, some aspects
of the Mexican economy have recently been weaker than expected, and
downside risks have increased. U.S. demand is growing
relatively slowly, and many businesses and consumers are worried
that U.S. fiscal policy will continue to tighten. That has
weighed on industrial production, while the uncertainty regarding
trade has put a damper on investment. The government has also
impeded growth by changing its policy on housing support and
slowing its spending, helping to reduce construction activity.
These trends have all served to limit hiring, and consumer
confidence and spending have fallen in response. Consumer
demand has also been hit by a surge in food prices, though costs
have finally started to moderate. In sum, Mexican economic
growth is indeed slowing, but if recent trends are not reversed,
activity could slow even more than expected.
Patrick Fearon, CFA
Vice President, Fund Management