IMF Raises Mexico Growth Forecasts On Robust Consumption, Services, and Auto Output

• The International Monetary Fund (IMF) on Tuesday, October 3, significantly raised its 2023 growth forecast for Mexico to 3.2% from a 2.6% forecast issued in July, citing strength in private consumption, services, construction and automotive production. The IMF also raised its 2024 growth forecast for Mexico to 2.1% from 1.5% in July.
• The new forecasts indicate continued economic strength in North America as the IMF prepares to release a new update to its World Economic Outlook global growth forecasts next week during annual meetings in Morocco.
• The IMF said Mexico's expansion was broad-based, with record-low unemployment and record-high manufacturing capacity utilization rates. Mexico has a significant opportunity to capture "nearshoring" of U.S. supply chains due to deep trade links to its northern neighbour.
• "However, capitalizing on this potential and competing with other production locations will require addressing Mexico’s long-standing structural challenges while continuing to pursue prudent macroeconomic policies," the IMF said. "This will require higher and better-targeted public investment, better governance, increasing access to domestic sources of finance, increasing female labour force participation, and pivoting consumption toward cleaner sources of energy," it added.
• That being said, the Fund added that the planned 2024 budget was "unduly procyclical," with increased spending on pensions, wages and flagship investment projects compounded by revenue pressures, for a projected deficit of 5.4% of GDP. It said this "will boost demand at a time when the economy is operating above potential and inflation is not yet back to the central bank's target."
• The IMF said this added growth pressure will likely lead to a higher path for interest rates, a stronger currency, a higher debt-to-GDP ratio and a slower decline in inflation.

(Source: Reuters)