Mexican Central Bank Sees Incipient Economic Recovery

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The Wall Street Journal by Juan Montes

http://online.wsj.com/news/articles/SB10001424052702304655304579551783175895904

MEXICO CITY—Mexico’s central bank said Friday an incipient economic recovery is under way, citing an improvement in exports and government spending, although many economists remain skeptical whether Latin America’s second-largest economy is clearly picking up after more than a year of anemic economic growth.

Most of the five-member board agreed that the economy started to improve at the end of the first quarter and that the recovery will continue in the coming months, the minutes of its most recent policy meeting showed.

The central bank’s comments come as most economists, and independent bodies such as the Organization for Economic Cooperation and Development, have been lowering their growth forecasts for Mexico for this year. Some economists have been arguing that the Mexican economy has been in a recessive period over the last nine months, something the government denies.

Finance Minister Luis Videgaray has repeatedly said Mexico is growing and generating employment, although at a still unsatisfactory rate. The government, led by President Enrique Peña Nieto, is badly in need of results on the economic front: In its first year in office last year, the economy expanded 1.1%, much lower than the 3.5% growth initially expected. In the first two months of 2014, growth amounted to 1.4%.

The central bank appeared Friday to support the government’s view that the economy is picking up. It said auto industry exports, a main factor of the country’s export engine, rose in February. Most board members argued that private consumption likely improved gradually in the first quarter. Government spending is also seen gaining pace after last year’s delays.

The central bank led by Gov. Agustin Carstens left interest rates unchanged at 3.5% on April 25 in a unanimous decision, the minutes showed. Despite concerns about the economy, policy makers didn’t discuss the possibility of a rate cut. Most members argued that the continued reduction in the U.S. Federal Reserve’s asset buying could put pressure on the peso in the coming months.

Mr. Peña Nieto’s government is confident that the economy will strongly rebound as of the second quarter owing to a recovery in the U.S. that will boost Mexican exports, and to the effects of the unprecedented $360 billion in public spending approved for this year.

But most economists remain skeptical.

The consensus sees economic growth at 3% this year, much lower than the 3.9% estimated by the government.

On Thursday, one of Mexico’s main financial newspapers made waves with a front-page headline that read: “Mexico is in recession.” The paper cited cyclical indicators from the statistics agency showing the economy had been in a recessive period in recent months.

Inside the central bank, one board member remained wary, saying that there were no clear signs of a recovery. He argued that household and business confidence remain low, and that new taxes that came into force at the beginning of the year are still affecting domestic demand.

The weak economy has had a positive side. Prices are easing and 12-month inflation hit a six-month low in April at 3.5%. Most policy makers at the central bank saw inflation expectations well anchored for 2014, and agreed that inflation risks were unchanged

 

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