Mexican finmin sees growth risks, stands by 2017 outlook

Wednesday, November 30, 2016

Mexican finance minister José Antonio Meade is standing by the government's projection of 2-3% GDP growth for 2017, despite a deluge of lowered forecasts from the central bank, private sector experts, ratings agencies and NGOs, stemming from the blast of uncertainty unleashed by Donald Trump's electoral victory and the likelihood of protectionist trade policies in the US starting next year.

The latest downward revision to challenge the official estimate came Monday with the OECD's decision to decrease its 2017 GDP outlook to 2.3% from 3% in its June analysis. The shift moves the organization's estimate closer to the IMF's.

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The IMF decreased its forecast to 2.2% in its Article IV review for the nation released last week, down from its previous estimate of 2.3% from early October. The central bank made a steeper reduction last week, decreasing the range to 1.5-2.5% from 2.0-3.0%.

Holding to 2-3%, the government's official forecast is centered well above newly lowered forecasts from these and private sector analysts, which roughly place 2017 growth closer to 1.7-1.9%.

The 2.5% midpoint from the ministry's forecast has drawn some criticism for being overly optimistic. Interviewed at a meeting of business leaders in Mexico City on Tuesday, Meade responded, "Look, the first component important to stress is that we do not make forecasts, we pull together market forecasts, we compare it to the [research] and what we do then is examine whether we think we have the conditions to support the [federal budget], or whether we should make adjustments."

Despite the comments, the finance ministry does offer occasional updates to its estimates for growth; its most important comes with the government's budget proposal, submitted in September with the 2-3% target range for 2017.

That budget, which has now passed through congress, was aimed at reducing spending, cutting 240bn pesos (US$11.6bn) from the level set for 2016 in order to achieve the nation's first primary surplus since 2008. The move was made in response to concerns, underscored by ratings agencies, that the nation must get its public debt under control.

"We do think that we are capable of achieving our target, the primary surplus and provide support to the programs we see reflected in the budget," said Meade on Tuesday.

Asked about the Trump effect at a political event over the weekend, he said, "We are, in as much as we can, sending signals of certainty," pointing to the "robust" budget package and efforts to work with the various sectors likely affected ahead to fortify areas in the economy.

Meade stressed how mechanisms in the budget are there to "to face the vulnerability that we have before us today."

"We have the elements needed to carry out the approved [budget]," said Meade. "We recognize there are risks to lower growth, not only in Mexico but in the world."

Asked about a potential decrease in investment in 2017, Meade answered, "It's one of the risks we have, and we are trying, within the spaces the reforms have offered us, to secure the investment processes."

"Therein is the importance of Pemex's business plan, the importance in the Red Compartida [digital infrastructure initiative], the importance of the [new Mexico City] airport, which are all investment projects in this climate of uncertainty that are going to help maintain dynamism moving forward."