Mexico lowers economic growth projection for two years

Source: Xinhua| 2018-08-30 15:34:58|Editor: Li Xia
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MEXICO CITY, Aug. 30 (Xinhua) -- The Central Bank of Mexico (Banxico) rolled back its economic forecast for 2018 and 2019 on Wednesday.

The monetary entity projected the country's GDP growth of between 2.0 and 2.6 percent for this year, compared to the previous projection of 2.0 to 3.0 percent.

For 2019, Banxico reduced its growth projection to between 1.8 and 2.8 percent, compared to the previous 2.2 to 3.2 percent.

While presenting the second quarter inflation report, Banxico Governor Alejandro Diaz de Leon said the adjustment is in line with the economic decline during that quarter, lackluster investment and slowing domestic consumption.

"A very important piece of data used in this revision is Gross Domestic Product growth, which clearly was not what was anticipated and led to revising the outlook," Diaz de Leon said during a press conference.

The Mexican economy, the second largest in Latin America, contracted 0.2 percent during the second quarter compared to the previous quarter, according to data released on Aug. 24.

In 2017, Mexico's economy grew by 2 percent, down from 2.9 percent in 2016.

The local economy still faces some risks in the short-term, including an escalation of protectionism at a global level, Diaz de Leon said.

There could also be periods of volatility in the international financial markets, and a prevailing environment of uncertainty that has been affecting investments, he said.

In addition, the governor said the understanding reached Monday between the United States and Mexico on the North American Free Trade Agreement (NAFTA) represented an "important step" which could lead to certainty in investment.

"The agreement is a very important step in reducing this uncertainty and we definitely believe it can contribute to larger economic growth in the event it is finalized with favorable terms," he said.

In terms of inflation, Banxico said that higher-than-expected increases in energy prices will affect the indicator's path, because the convergence to the goal will be slower.

The monetary entity is now projecting that inflation will be 3.3 percent at the end of 2019, compared to the previously projected 3.1 percent.

At the end of 2018, the price index will be at 4.2 percent, compared to the previous 3.8 percent.

Banxico has a permanent inflation objective of 3.0 percent, with a 1 percent differential in either direction.

"The risk balance for inflation has an upward bias in an environment with a high degree of uncertainty," according to the report.

Interannual inflation in Mexico grew 4.81 percent in the first half of August, according to the most recent information.

On Aug. 2, Banxico decided to leave the key interest rate intact at 7.75 percent, its highest level in more than nine years.

Banxico's governing board said it would closely follow the evolution of inflation and adjust its monetary policy in a timely manner to achieve convergence of the indicator.