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.
The passage of energy sector reform 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 3.1% to 2.8% as weak oil exports weigh on trade dynamics and the impact of rates hikes coupled with elevated inflation eat into consumer spending.
We have revised down our 2016 forecast for the Mexican peso, from MXN16.20/USD to MXN17.50/USD. Increased global risk aversion given tighter global liquidity conditions and rising market fears of a disorderly slowdown in China will weigh on the peso. Coupled with a sharper than expected drop in oil prices - which will cool export growth and undermine investor sentiment toward the oil producing economy - this underpins our view that the peso will be vulnerable to sharp sell-offs in the months ahead.
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||2.1||2.4||3.1||3.5|
|Nominal GDP, USDbn||1,304.4||1,147.4||1,198.9||1,319.2|
|Consumer price inflation, % y-o-y, eop||4.1||2.5||3.9||3.8|
|Exchange rate MXN/USD, eop||14.75||16.70||15.90||15.25|
|Budget balance, % of GDP||-3.1||-3.5||-3.1||-2.8|
|Current account balance, % of GDP||-1.9||-2.6||-3.2||-2.3|
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