The Mexico Central Bank Has Reduced Its Forecast for the Growth of the Country’s GDP in 2024 to 1.5%

In its quarterly report, which was released on Wednesday, the Bank of Mexico revised its projection for economic growth for both this year and the following year. The report brought to light the impact of the persistent challenge of inflation as well as the decreased demand for manufacturing carried out in foreign countries.

Forecasts for the growth of the country’s gross domestic product have been revised by the central bank of the second largest economy in Latin America. It has revised its projections for the year 2024 to reflect a growth rate of 1.5%, which is a decrease from the previous forecast of 2.4%. In addition, the bank anticipates a growth rate of 1.2% for the following year, which is a substantial improvement from the previous projection of 1.5%.

Impact of Weak External Demand and Inflation

A downward revision of the forecast was made by the central bank of Mexico, Banxico, as a result of the disappointing growth that occurred in the second quarter. It is anticipated that the demand from outside sources will continue to be weak, primarily as a result of the expected decline in manufacturing in the United States and a decrease in public infrastructure projects that would have otherwise stimulated domestic construction.

“Anticipating continued economic expansion in the upcoming quarters, albeit at a more restrained rate,” said bank Governor Victoria Rodriguez during a call. She indicated that she is optimistic that the recovery of manufacturing in the United States will contribute to future growth.

The most recent official statistics, which were released last week, showed that Mexico’s gross domestic product (GDP) experienced a moderate growth of 0.2% in the second quarter when compared to the three months prior to that. With the release of these data, the ongoing trend of a slowdown that has been observed since the end of the previous year has been further confirmed.

The Fed raised its projections for inflation and indicated a shift in its perception of inflation risks, now leaning toward an upward bias. In contrast, it had previously viewed them as balanced. This shift occurred after the Fed increased its inflation projections.

The prediction that both measures of inflation are expected to align with its 3% goal by the end of the following year was, however, continued to be upheld by the organization.

Monetary Policy and Inflation Projections

As of this year, Banxico’s forecast for the core inflation rate during the fourth quarter increased slightly, going from 3.8% to 3.9%. In the meantime, they forecast that the headline inflation rate will reach 4.4% by the end of the third quarter of this year, which is a higher estimate than the 4% they had previously predicted.

The report highlighted the persistent inflation in services, which the central bank noted as remaining elevated without displaying a definitive downward trend. Additionally, the central bank highlighted the anticipated increase in prices that will have an impact on agricultural products and energy.

Jonathan Heath, the Deputy Governor, stated that it is imperative that we put an end to this unyielding determination immediately. “Once the rate of inflation in services begins to exhibit a noticeable decline, it would indicate that we are making significant progress in achieving victory in this endeavor.”

With the annual inflation rate standing at 5.16% during the first half of August, it is clear that the rate has been gradually decreasing since reaching its highest point in 2022. Nevertheless, it continues to be a significant amount higher than the target of 3% that was desired.

However, the bank stated in its report that it anticipates the inflationary climate to open up the possibility of considering additional reductions to the benchmark interest rate. This is something that the bank believes will cause the bank to consider.

Over the past few weeks, Banxico has decided to lower its benchmark interest rate by 25 basis points, bringing it down to 10.75%. This decision was reached through a vote that resulted in a variety of opinions. The fact that this action was taken indicates that there is a possibility that prices will increase beyond what was initially anticipated.