Mexico City, Mexico — The International Monetary Fund (IMF) reports that the Mexican economy will grow 2.1 percent in 2017, with private consumption being the main driver of activity backed by manufacturing exports.
They also say that investments have remained weak in the midst of uncertainty for the future of commercial relations between Mexico and the United States. The biggest domestic risk, they say, comes from the uncertainty about the political landscape due to the 2018 general elections, which may adversely affect investments.
The annual evaluation of the international financial institution suggests that growth will slow slightly in 2018, before it picks up speed as uncertainty dissipates.
The IMF explained that annual general inflation has accelerated to more than 6 percent (with annual core inflation at almost 5 percentage points), which mainly reflects the recent liberalization of gasoline prices.
The agency’s directors recommended further strengthening the fiscal framework, including emphasizing the level of debt and limiting the use of the exceptional circumstances clause.
In their report, they stressed the need to prioritize reforms aimed at good governance, security and rule of law while combating informality.
They also suggested that the occasional transfer of the remaining operation of the Bank of Mexico to the federal budget be used to reduce the sector’s financial requirements and public debt. The directors considered that the current pause in the monetary adjustment is appropriate.
They pointed out that the policy on the subject could relax when inflation is firmly on a downward trajectory and inflation expectations are well anchored, but urged authorities to carefully assess the risks and ensure that economic policy decisions continue to be based on performance.
They advised to continue with the improvements in the communication of the monetary policy. They agreed that the flexible exchange rate should continue to play a key role in helping the economy adjust to possible external shocks.
They recognized the resilience of the financial sector and recommended that it be further strengthened through regulatory reform. They expressed that the new national policy of financial inclusion would help improve access to services for low-income households and small businesses, although, they pointed out, more efforts are needed in that regard.
In the annual evaluation of the IMF Executive Board on the Mexican economy in 2017, they underscored the importance of improving the efficiency of judicial institutions and urged the implementation of the National Anti-corruption System.
The strengthening of the rule of law and the improvement in the application of anti-discrimination laws, they stressed, could help reduce gender inequality and increase the participation of women in the labor force.
They urged the authorities to address any deficiencies that may be identified in the evaluation of the fight against money laundering and terrorist financing.
The IMF forecasts that both headline and core inflation will gradually converge toward the target by the end of 2018, while medium-term expectations remain well anchored.
They also report that Mexico’s economy will slow to 1.9 percent in 2018, saying that the renegotiation of NAFTA and next year’s elections will affect the country’s growth.
“Growth is expected to decrease slightly in 2018 before increasing speed as uncertainty is resolved,” says the report.