Mexico cenbank survey shows post-Trump slump in forecasts
Much as expected, Mexican private sector estimates for inflation and growth, released Friday, took sharp negative turns in the first central bank monthly survey following Donald Trump's election victory in the US.
In the last week of November, analysts produced a mean estimate of 3.4% for general inflation in 2017, up sharply from the 3.25% average forecast made in late October.
Consumer prices also saw a stronger-than-expected jump in the first two weeks of November, hitting a year-on-year rate of 3.29%, surpassing a consensus estimate of 3.2% ahead of the report, driven by a hefty 25.6% month-on-month jump in electricity prices.
While maintaining the forecast for year-end growth at 2.10%, GDP estimates for 2017 plummeted to 1.80% from 2.30% the previous month.
The outlook for the exchange rate was perhaps the most dramatic change in today's poll. The average forecasts were 20.63 pesos to the US dollar for year-end 2016 and 20.77 pesos for the close of 2017. In contrast, experts predicted rates of 18.60 pesos and 18.63 pesos per dollar, respectively, last month.
Finally, the analysts called for a the central bank to make one more hike in the benchmark interest rate on December 15, suggesting that 2016 will end with a reference rate of 5.60%; the average estimate, up from the current 5.25%. This would be the fifth hike in 2016 and the sixth since December 2015. The new estimate is above the 5.02% seen in the previous poll.
Rates look set to rise even further in 2017, closing the year at an estimated 6.38% - up from the average expectation of 5.55% in the previous survey.
Growth potential is being hurt by the potential protectionist policies that the Trump administration might enact after assuming power in January - both the real impact and the loss of capital stemming from investor fears ahead of the policy changes.
A transition-team strategy memo leaked last month indicated plans for Trump to make a decision on change or repeal of Nafta, the outcome of which could ultimately result in a return to higher prices on both sides of the border, a major loss in direct foreign investment for Mexico and devastating declines in exports to the US.
Other policies could impact remittances - a key component of Mexican GDP. On Friday, the central bank reported a 7.61% year-on-year hike in remittances in January to October 2016, thought to reflect concerns that Trump may carry out an extreme deportation policy and could even tax remittances to pay for a massive border wall between the US and Mexico.
Adding to Trump woes for Mexico, low oil prices continue to bedevil the economy, and the government has a challenging year ahead if it wishes to achieve the 0.4% primary budget surplus in 2017, as it attempts to reverse ballooning public debt.
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