Mexico’s central bank increased its economic growth forecast for this year and the following year, indicating that activity is above expectations in large part because of robust trade with the US.
According to the central bank’s quarterly report released on Wednesday, Banxico increased its projection for growth in 2023 from 2.3% to 3%. The bank has increased its forecast for 2024’s GDP growth from 1.6% to 2.1%. Despite the bank’s resolve to maintaining interest rates at a record 11.25% to bring inflation back to target, the good growth data have continued to surprise to the upside.
According to Banxico Governor Victoria Rodriguez, exports to the US “have contributed to the resilience” of the Mexican economy. “Private consumption has maintained an upward trend.”
Mexico’s major trading partner, the US, has seen its economy grow, which has fueled steady foreign demand for its products and supported brisk exports. The same goes for foreign companies’ investments, which totaled $29 billion in Mexico during the first half of the year.
Although a US recession is not ruled out, more analysts believe there is a greater chance that the world’s largest economy will avoid one without significantly harming the labour market. That would support the optimistic view of Mexico’s economy, which sells its northern neighbour everything from autos to computer processors to plastics.
After ending a record-breaking series of rate increases in March, Banxico has kept borrowing costs steady for the past three sessions. The significance of adhering to the deflationary process has been emphasised by Governor Rodriguez, and the members of the banks have not publicly indicated when they could begin to reduce interest rates.
The outlooks are still murky, despite the ongoing disinflation process, Rodriguez said on Wednesday.
One of the members suggested that the bank might continue to follow its present monetary policy course for the remainder of the year in the minutes of the August decision. At the end of 2024, the bank continued to estimate that inflation would be close to its target level, which it had made earlier in August. The bank sets an inflation objective of 3%, plus or minus 1%.
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The local demand has also been influenced by government financial transfers, remittances from employees abroad, and rising earnings. Prior to beginning his final year in office, President Andres Manuel Lopez Obrador’s typically conservative administration increased spending on infrastructure and social programmes.