MEXICO CITY: After announcing GDP growth of around 2.1 per cent in 2014, the Bank of Mexico has slashed its forecast for this year to between 2.5 per cent and 3.5 per cent; down from its earlier estimate of 3 to 4 per cent, due to lower oil prices and domestic consumption, it says.
The cut is just the latest in a slide of official forecasts underscoring a disappointing economic performance in stark contrast to the high growth promised by President Enrique Peña Nieto. In just over two years in office, he pushed through ambitious reforms to liberalise the oil sector, boost competition in telecoms and other structural changes to revive growth.
Official 2014 GDP data are due but Agustín Carstens, Bank of Mexico governor, told it was expected to be 2.1 per cent at the bottom end of the 2.1 to 2.6 per cent range the finance ministry predicted in November.
At that time, the ministry also pencilled in 3.2 to 4.2 per cent growth for 2015, after earlier budgeting 3.7 per cent for this year. But that forecast now looks challenging.
“Due to a less favourable external environment, the downward trend in oil production and the prevailing weakness in some components of domestic demand, we are lowering our forecasts for Mexico’s GDP growth,” the Bank of Mexico said in its quarterly inflation report.
It was more bad news for a government that is seeking to slash spending this year by more than $8bn in a widely-applauded preventive measure to mitigate the oil price pain. Mexico relies on oil revenues to fund a third of the federal budget.
But economists said the outlook was not entirely gloomy. “It’s realistic,” said Alonso Cervera, economist at Credit Suisse, of the revised 2015 goal.
Mexico has struggled to emerge from a three-decade growth rut with GDP expansion averaging in the mid 2 per cent range. The government has been pinning its hopes on a raft of overdue reforms to power a quantum leap of more than 5 per cent growth by the end of Mr Peña Nieto’s term in 2018.
“The central bank is telling us that for 2015, growth will be at trend. Average growth in the last two years has been around 1.7 to 1.8 per cent, which is below trend and below expectations,” Mr Cervera said. “I think it’s a 2016 story now, not a 2015 one.”
“The truth is that there are still almost four years [of this administration] to go. There have been important reforms that can have a very large impact on growth. Although the likelihood of reaching 5 per cent growth is lower now than a couple of years ago, I wouldn’t rule it out,” he said.
He predicted 3.2 per cent growth in the US economy this year including 4 per cent growth in US manufacturing, which would augur well for Mexico. Mexican manufacturing is highly integrated with its northern neighbour and nearly 80 per cent of Mexico’s manufacturing exports head to the US.
If those US growth rates materialise, Mexican manufacturing will also grow at 4 per cent and “that keeps the ceiling for overall growth in Mexico at around 2.5 per cent” for this year, Mr Oviedo said.
