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 through the remainder of the year.
We have revised our policy rate forecast after a surprise 50 basis point hike in February and a further 50 basis point hike in June . We now expect the policy rate will end the year at 4.75%. As we no longer expect any interest rate hikes on the part of the US Federal Reserve, Mexico will be wary of opening too wide a gap between the countries' benchmark rates.
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.
|Real GDP growth, % y-o-y||2.3||2.5||2.7||3.0|
|Nominal GDP, USDbn||1,304.7||1,152.2||1,094.0||1,227.9|
|Consumer price inflation, % y-o-y, eop||4.1||2.1||3.5||3.8|
|Exchange rate MXN/USD, eop||14.75||17.23||17.10||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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