Momentum set to build in 2013
Momentum in Mexico’s economy has slowed in recent months, with exports falling 4.9% on the month in January and industrial production dropping 2.1% in December. The slowdown in the economy, combined with the US sequester and falling core inflation, prompted the central bank to cut its policy rate by 50bps in March, the first cut since 2009. However, we now expect GDP to grow by 3.5% this year.
The gentle acceleration of growth this year will be driven by a steady improvement in both external and domestic demand. Despite the enactment of the sequester, demand in the US is expected to build momentum, and Mexico’s exports will also be supported by the competitive level of the exchange rate. Growth in consumer spending is also expected to accelerate, helped by low inflation and an expected improvement in the labor market.
President Nieto’s Government has already begun to introduce wide-ranging reforms to improve the functioning of the labor market and break- up the monopoly in the telecoms sector, also plan to widen widen the tax base and open up the oil sector. Mexico’s medium- term prospects are bright, with favorable demographics and the country’s high level of openness to trade set to stimulate spending and growth. Indeed, Standard and Poor’s ratings agency recently upgrading its outlook for Mexico from stable to positive.
Merchandise trade: US vs. Mexican growth
Source: Oxford Economics
Consumption and investment
Source: Oxford Economics
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