We remain optimistic toward Mexico's long-term growth outlook on the back of a booming manufacturing sector, an increasingly strong private consumer and favourable demographics.
Energy sector and other structural reforms will bolster sentiment towards Mexican assets and contribute to stronger real GDP growth in the coming years.
Major Forecast Changes
We have revised down our 2016 real GDP growth estimate from 2.8% to 2.6% as greater-than-anticipated fiscal and monetary tightening look poised to weigh on growth substantially in the year ahead.
We have revised our policy rate forecast after a surprise 50 basis point hike in February. We now expect the policy rate will end the year at 4.25%. Slow growth will temper appetite for monetary tightening by Banxico in the near term. However, as the US Federal Reserve begins to raise the fed funds rate in H216, Mexico will likely follow suit in a bid to maintain the interest rate differential with the US and defend against short-term capital outflows.
A further drop in oil prices could temper investment excitement towards Mexico's first international deepwater oil licensing round. A disappointing bid round would weigh heavily on the long-term fixed investment outlook of the country.
A weakening in the US economy would weigh on real GDP growth in Mexico, through lower export growth of manufactured goods.
A deteriorating security environment also poses downside risk to our growth outlook, as it could drive a reversal in investor sentiment.
|Nominal GDP, USDbn||1,304.7||1,152.6||1,096.6||1,230.8|
|Real GDP growth, % y-o-y||2.3||2.5||2.6||3.0|
|Consumer price inflation, % y-o-y, eop||4.1||2.1||3.5||3.8|
|Exchange rate MXN/USD, eop||14.75||17.23||17.20||16.20|
|Budget balance, % of GDP||-3.1||-3.5||-3.1||-2.8|
|Current account balance, % of GDP||-1.9||-2.8||-2.9||-2.5|
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