MexECON Blog

Central Bank Cuts 2013 Growth Forecast

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



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