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2001
budget submitted to Congress. The Central
Bank has repeatedly called upon the government to tighten its belt.
The Finance Ministry, however, has argued that the 11.1 billion peso
overall public sector surplus during the first nine months this year
obviates the need for spending cuts and that government accounts are
currently in line with the fiscal deficit target of 1.0% of GDP for 2000.
Nevertheless, the new administration’s budget, which needs to be
ratified in Congress by 31 December, foresees only moderate spending
increases and plans for a fiscal deficit of 0.5% of GDP in 2001. The
budget assumes an average price of US$ 18 per barrel of the Mexican oil
mix (in November the average price was US$ 26.2 per barrel), 4.5% real GDP
growth, year-end inflation of 6.5% and an average exchange rate of 10.1
pesos per US$. The Consensus is only slightly more pessimistic than
the government about next years fiscal outlook. This and the
continued reduction in next year’s fiscal deficit forecast demonstrates
that the new government has gained credibility over the past three months.
Inflation
stabilises.
In November, consumer prices
increased by 0.86%, in line with market expectations. The annual
inflation rate remained virtually unchanged, dropping from 8.91% in
October to 8.87% in November. The main drivers behind the November
increase were price increases for electricity, domestic gas and
long-distance bus fares, which together contributed 0.41 percentage points
to the monthly rise. The underlying inflation index, which excludes
the more volatile items, increased 0.60% in November, taking the annual
rate to 7.8% from 7.9% in October. Panellists expect inflation to
drop further towards the end of the year, despite indications of strong
holiday spending. While inflationary expectations for next year have
been on a downward trend for the past several months, the Consensus for
inflation still remains well above the Central Bank’s 6.5%.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Mexico. For more details please click here.
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