Mexico’s central bank raised its growth projection for the country’s economy for this year and next, signaling that activity is surpassing policymakers’ expectations in large part due to strong trade with the US.
(Bloomberg) — Mexico’s central bank raised its growth projection for the country’s economy for this year and next, signaling that activity is surpassing policymakers’ expectations in large part due to strong trade with the US.
Banxico, as the central bank is known, revised its estimate for 2023’s expansion to 3% from the prior reading of 2.3%, according to its quarterly report released Wednesday. For 2024, the bank now expects a 2.1% GDP expansion compared to the previous 1.6% estimate. The positive growth figures have continued to surprise to the upside despite the bank’s commitment to holding interest rates at a record 11.25% to get inflation back to target.
Exports to the US “have contributed to the resilience” of the Mexican economy, Banxico Governor Victoria Rodriguez said during the report’s presentation. “Private consumption has kept a positive trajectory.”
The economic expansion of the US, Mexico’s largest trading partner, has helped to fuel sustained external demand for Mexico’s goods, underpinning booming exports. So too is the investment of foreign firms, which poured $29 billion into Mexico in the first half of the year.
Though a recession in the US isn’t out of the question, an increasing number of economists see bigger odds that the world’s largest economy can skip one without doing much damage to the labor market. That would bolster the bullish case for Mexico’s economy, which sells everything from cars to computer processors to plastics to its northern neighbor.
Banxico ended a record hiking cycle in March and has since held borrowing costs unchanged at the last three meetings. Governor Rodriguez has been unequivocal about the importance of following the disinflation process, and the banks’ members have not given public guidance on when they might start to cut interest rates.
“Even as the disinflation process continues, the outlooks remains complicated,” Rodriguez said Wednesday.
In the minutes of the August decision, one member said that it was possible that the bank would maintain its current monetary policy stance through the rest of the year. The bank maintained its inflation prediction from earlier in August, stating it would be near-target at the end of 2024. The bank targets inflation at 3%, plus or minus one percentage point.
Read More: Mexico’s Economic Growth Revised Lower From Early Estimate
Government cash transfers, remittances from workers abroad, and higher salaries have also contributed to local demand. President Andres Manuel Lopez Obrador’s traditionally austere government has boosted spending on construction projects and social programs before starting his last year in power.
–With assistance from Rafael Gayol, Carolina Gonzalez and Dale Quinn.
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