Despite stumbles relating to low commodity prices, Mexican peso devaluation, inflationary pressures and Brexit, Mexico’s central bank still expects reasonable growth.
Mexico’s economy is between a rock and a hard place. The Mexican peso’s devaluation is still going strong, and the threat of rising inflation is ever-present. Additionally, the market reacted negatively to recent economic shifts, specifically the Brexit. Low commodity prices don’t help an economy that still relies heavily on metal and petroleum extraction.
Last year, despite having many of the same troubles, the Mexican economy managed to grow 2.5%. Their central bank has been cutting economic forecasts over the past years amid collapsing oil prices and what they themselves call “an unfriendly world economy”, most experts agree matching last year will be tough.
However, Agustín Carstens, governor of the Mexican central bank remains hopeful that it is possible to post 2.5% growth this year.
Referring to the drops triggered by the Brexit, Carstens told The Financial Times: “If subsequent [Brexit] developments are handled in an orderly, constructive fashion — that’s an important if — I think it [the impact] should be manageable.”
What perhaps worries him the most are the economic impacts of Mexico-United States relations. The Mexican peso hit an all-time low against the US dollar when the dollar sold for 19.52 pesos. Now it is valued at just above 18.6 pesos to the dollar.
The prospect of the US presidential election also worries Mexico’s bankers, Donald Trump’s steady pace has harmed trust in the Mexican economy and currency. Mr. Carstens warned that Mexico had to be “very cold-headed” in their relations with the United States, prioritizing mutually beneficial arrangements to further strengthen ties with their northern neighbor.
Mr. Carstens expect volatility to continue, and that will most likely hurt investors’ trust in Mexico. However he highlights Mexico’s economic management in spite of the grim outlook. “I think what Mexico needs to do is to distinguish itself from other emerging markets, and the way of doing it is by having a consistent and congruent macro framework — adequate fiscal and monetary policy to accommodate the shocks we are facing,” said Mr. Carstens.