Research Dept. News
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Monthly Report, num 357 - May 2012
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International review - Mexico
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Mexico: the calm before the election
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The Mexican economy is facing a relatively comfortable economic outlook.
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The latest macroeconomic indicators suggest a relatively comfortable outlook for the Mexican economy. Consumer and producer sentiment is increasingly optimistic; industrial production posted strong growth in February (5.9% year- on-year, compared with 4.3% in January) and purchasing manager indices point to the manufacturing cycle becoming stronger. This reflects the better tone, on the one hand, in domestic demand, which continues to pick up speed thanks to improved credit, remittances and employment; additionally, foreign demand has been boosted by the gradual recovery in its neighbour to the north.
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The central bank has yet to make a move but its governor advocates far-reaching structural reforms.
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In the area of prices, the bulk of the evidence available suggests that the inflationary upswing at the end of 2011, due to a shock in the food supply and the impact of a weak peso on core inflation, is dying down. Undoubtedly, the cyclical position of the economy, with moderate growth below its potential, has helped to ease the rise in prices.
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This macroeconomic scenario is of great help to the monetary authority which, given the solid but still restrained growth and with the absence of any significant pressures on prices, can allow itself to keep the discount rate unchanged, at 4.5% since July 2009. In any case, its latest announcements continue to show a clear bias towards laxer monetary policy, due undoubtedly to the context of extreme monetary lassitude at a global level.
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This favourable economic situation is also helping to prepare the ground for the electoral campaign to dust off proposals for substantial structural reforms. In this respect, the governor of the central bank, Agustín Carstens, recently and explicitly asked the presidential candidates to think seriously about these reforms. Reforms that, as he ventured, if they are carried out successfully, might take the Mexican economy to growth rates in the region of 5%, double its average growth over the last decade.
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