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 Business News | April 2008 
Mexico Expects Economic Growth to Accelerate in 2009
 Jens Erik Gould - Bloomberg
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Mexico's government forecasts economic growth will quicken to a three-year high in 2009 because of a recovery in the U.S., its biggest trading partner.
The Finance Ministry said expansion may accelerate to 4 percent next year from 2.8 percent in 2008, according to a statement posted on its Web site late yesterday. The estimates assume the U.S. economy will grow 2.3 percent in 2009 and 1.5 percent in this year.
Mexico is betting that domestic demand will help it outperform the U.S. economy. President Felipe Calderon this year is increasing government spending on roads, ports and other infrastructure and introduced tax breaks to strengthen domestic demand as the U.S. economy falters.
"We are acting with determination in the adverse international economic situation," Calderon said today at an event with the Mexican Council of Businessmen.
In all, Calderon's fiscal stimulus package this year equals about 1 percent of gross domestic product. Calderon, who took office at the end of 2006, is also pushing through legislation he says will make Mexico more competitive. This year he's seeking support for a bill to open the state oil monopoly to foreign and private investment.
Business Investment
Mexican companies will invest $23.7 billion in 2008, said Claudio X. Gonzalez, president of the Mexican Council of Businessmen. Investment this year will be 2.7 times greater than in 2000 and will create 1.3 million direct jobs, he said.
"If there is any moment for our country to face adversities, it is now, with stability, healthy public finances and, mainly, with the measures you have taken to launch a countercyclical program," Gonzalez told Calderon at the meeting, held at the presidential residence.
Calderon said that the government increased public spending by 104 percent in February compared with the same month last year.
Tax revenue will increase 4.2 percent next year, helped by an expanding domestic economy as well as new legislation that raised gasoline levies and plugged legal loopholes used by companies to pay less tax, the finance ministry statement said.
There has been a decrease in yields on medium- and long- term bonds because of expectations that the central bank may reduce its benchmark interest rate if inflation slows in the second half of 2008, the statement said.
Benchmark Rate
The central bank kept its key lending rate unchanged at 7.5 percent for a fifth month in March as policy makers balanced their forecast for above-target inflation with concerns that the economy is slowing.
Inflation at the end of 2008 will be about 3.7 percent and inflation in 2009 will be close to the central bank's target of 3 percent, the Finance Ministry said.
The central bank says annual inflation may reach 4.5 percent in the second and third quarters of this year, before slowing to between 3 and 3.5 percent by the end of 2009.
Mexico's current account deficit will equal 1.2 percent of GDP in 2009, the Finance Ministry said. Foreign direct investment will be more than $20 billion and revenue from remittances will be more than $25 billion, the statement said.
Mexico may not meet the ministry's GDP forecast for 2009 should the economy in the U.S., which buys around 80 percent of Mexican exports, recover only modestly. That might happen if U.S. inflation accelerates, access to credit doesn't improve, or weakness in the housing market persists, the statement said.
Other risks include a greater slowdown in global financial markets or a decline in oil prices, the ministry said.
The central bank in January cut its economic growth forecast for 2008 by half a percentage point, to a range of 2.75 percent to 3.25 percent.
The reference price for Mexican export crude for April through December 2008 will be $59 a barrel and the reference price for 2009 will be $59.20 a barrel, the finance ministry said in the statement.
To contact the reporter on this story: Jens Erik Gould in Los Angeles at jgould9(at)bloomberg.net. |
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