| | |  Business News | October 2008 
Mexico Central Bank Sees 2009 Growth as Low as 0.5%
 Jens Erik Gould & Hugh Collins - Bloomberg
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 |  | The bank had previously forecast 2008 economic growth of 2.25 percent to 2.75 percent. |  | | | |
Mexico's central bank said growth may slow to 0.5 percent next year as the global credit crunch and the slump in the U.S. hurt Latin America's second-biggest economy.
The bank lowered its 2008 economic growth forecast to 2 percent, the fourth cut this year. The economy will expand 0.5 percent to 1.5 percent next year, according to the bank's quarterly report released today. Policy makers left their inflation forecasts unchanged through 2010.
Banco de Mexico Governor Guillermo Ortiz may be signaling that he's more worried about the economy than inflation, suggesting the bank may cut its benchmark interest rate soon in a bid to spur growth, said Gabriel Casillas, an economist at Banco UBS Pactual in Mexico City.
"Ortiz was in a dovish mode," said Casillas, who predicts the bank will lower its benchmark interest rate in January. "They're preparing the market for a cut."
The bank had previously forecast 2008 economic growth of 2.25 percent to 2.75 percent.
"A weak global economy will likely mean a drop in manufactured exports and remittances sent from abroad," the central bank said in the report.
The wide range of the forecast for 2009 shows the central bank expects further volatility in financial markets to affect Mexico's economy, said Bertrand Delgado, a Latin America economist with IDEAglobal Inc, a New York-based research firm.
Changing Variables
"They don't want to give anything too specific when the variables might change quite rapidly," Delgado said in a telephone interview.
The bank maintained its inflation forecasts through 2010 even after prices for commodities such as oil and wheat declined since the last report. Banco de Mexico in July said the annual rate would reach as high as 6 percent in the fourth quarter.
A weaker currency may bring about higher prices, blunting the effect of falling food prices in the fourth quarter, the bank said. Mexico's peso has declined by 20 percent in the past two months.
Annual inflation in Latin America's second-biggest economy slowed in September for the first time in eight months to 5.47 percent.
Money transfers from Mexicans living abroad will fall by 2.5 percent this year because of the U.S. economic slowdown, which has hit the construction and manufacturing sectors particularly hard, the central bank said in its report.
Remittances
Workers' remittances fell 12.2 percent in August, the biggest monthly decline on record, as a deepening U.S. credit crisis and stricter law enforcement for undocumented residents put more laborers out of work.
Money transfers rose 0.2 percent in September from a year earlier and will probably grow in the fourth quarter, as workers abroad take advantage of a depreciating peso to send money, Ortiz said.
"The weakening of the peso in recent weeks has encouraged Mexicans to send remittances," he said at the news conference.
Remittances, which totaled $24 billion last year, are the second-biggest source of dollar flows to Mexico after oil exports.
Ortiz spoke as the U.S. Federal Reserve announced it had agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore to boost the availability of dollars in emerging markets.
Mexico's access to the money is a "preventative" measure and there are no plans to use the funds, David Margolin, director of operations at the central bank, said today at a news conference in Mexico City.
Mexico doesn't lack liquidity and would only use the swap facility if credit conditions tighten, Margolin said.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net; Hugh Collins in Mexico City Hcollins8(at)bloomberg.net |
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