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Upside
risks to inflation. Monetary authorities
are well aware of the considerable upside risks that are threatening their
inflation objectives this year. In its monetary policy report from
January, Banco De México acknowledges the risks posed by lower oil
prices, an even more pronounced slowdown of the U.S. economy and a
drying-up of international capital flows to the currency and consequently
to prices. On the domestic side, the Central Bank foresees excessive
domestic demand, exceeding inflationary expectations and pressures from
wage hikes as potential inflation drivers. The price pressures
potentially arising from the fiscal reform (particularly the VAT) planned
for March/April this year are seen as transitory only, if the monetary
authorities successfully evade secondary effects. Nevertheless, the
Bank reckons that it has to maintain, or possibly intensify, the monetary
restriction currently applied and anticipates high real interest rates for
2001.
Trade
deficit widens substantially in December.
According to preliminary data, the December trade deficit amounted to US$
1.5 billion. This was the highest monthly trade deficit since
December 1994, the month in which the peso crisis started. Exports
continued to grow at double-digit rates (+11.4% year-over-year) but were
eclipsed by a more rapid import growth of 14.1%, driven by strong domestic
demand. Slower export growth was the result of a 5.0% contraction of
oil exports in the wake of lower oil prices (US$ -3.5 per barrel over
December 1999), while non-oil exports grew by 13.2%. Maquiladora
exports remained surprisingly strong (+23.0% year-over-year) despite the
marked slowdown of the U.S. economy. The non-maquiladora
manufacturing industry, however, suffered far more, expanding by only
2.6%, due to lower U.S. demand in the automotive industry. Imports,
on the other hand, were propelled by strong influx of consumer goods
(+20.5% yoy) whereas capital and intermediate goods increased by 17.3% and
12.6% respectively. Owing to the high December trade deficit, the
annual trade deficit widened to US$ 8.0 billion from US$ 7.6 billion in
November. Exports increased 22.0% over 1999, whereas imports grew by
22.9%. In 2001, panellists expect a pronounced slowdown in the trade
expansion. Exports are expected to grow 7.6% this year while imports
will expand by 10.5%. As a consequence, the trade deficit is seen
widening to US$ 13.7 billion.
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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