Mexico Central Bank Reduces 2024 GDP Growth Forecast to 1.5% – Reuters

By Sarah Morland

MEXICO CITY (Reuters) – The Bank of Mexico has revised its economic growth forecast for both this year and next, as noted in the central bank’s quarterly report on Wednesday. The adjustment comes in response to weaker demand from foreign manufacturing and persistent inflationary pressures.

The central bank, which serves as the monetary authority for the second-largest economy in Latin America, now projects a gross domestic product (GDP) growth of 1.5% for 2024, a decrease from the earlier estimate of 2.4%. For the following year, growth is estimated at 1.2%, down from a previous prediction of 1.5%.

Banxico, as the institution is commonly referred to, attributed the lowered forecast to disappointing growth in the second quarter, indicating that external demand is expected to remain lackluster due to anticipated weakness in U.S. manufacturing and a decline in public infrastructure projects that typically stimulate domestic construction.

“We expect the economy to continue growing in the upcoming quarters, albeit at a slower pace,” stated bank Governor Victoria Rodriguez during a call. She mentioned that a recovery in U.S. manufacturing could help drive growth in the future.

Recent official statistics revealed that Mexico’s GDP rose by 0.2% in the second quarter compared to the previous quarter, further highlighting a slowdown trend that has been evident since late last year.

The monetary authority has raised its inflation forecasts, indicating that it views the risks regarding inflation as skewed to the upside, unlike its previous assessment, which regarded the risks as balanced. Nonetheless, it maintains the expectation that both inflation measures will align with its 3% target by the end of next year.

For 2023, Banxico adjusted its fourth-quarter core inflation projection to 3.9% from 3.8%. Additionally, it anticipates that headline inflation will reach 4.4% in the last quarter of this year, an increase from the previous forecast of 4%.

The central bank’s report noted anticipated price increases for food and energy, alongside persistent inflation in the services sector, which has not displayed a clear downward trend. “We need to break this persistence,” remarked Deputy Governor Jonathan Heath, emphasizing that a visible downward trend in services inflation would bring the bank closer to overcoming inflation challenges.

Annual inflation stood at 5.16% in early August, gradually declining from a two-decade high reached in 2022, yet remaining far from the 3% target.

The central bank’s report also indicated that the current inflationary context may open discussions about further reductions to the benchmark interest rate. Earlier this month, Banxico lowered its benchmark interest rate by 25 basis points to 10.75% in a divided vote, suggesting that prices could still escalate beyond previous expectations.