Fiscal adjustments.  The slump in economic growth in the first quarter has also impacted Mexican public finances.  On 7 May, the Finance Ministry announced that public sector revenues were 3.4 billion pesos (US$ 368 million) lower than projected.  Nevertheless, the public sector registered an overall surplus of 13.3 billion pesos (US$ 1.4 billion) in the first quarter of 2001, 6.3% lower in real terms than in the first quarter last year.  Since the difference between projected and actual revenues was not related to the behaviour of the price of the Mexican oil mix but rather to the downturn in domestic economic activity, the shortfall cannot be covered with resources from the Oil Stabilization Fund.  As a consequence, the government has to adjust for the revenue shortfall with expenditure cuts in order to meet the fiscal deficit target of 0.65% of GDP this year.  The Fox administration has already announced that the government will cut spending by 3.4 billion pesos (US$ 368 million) in accordance with the automatic stabilizers included in the 2001 Budget Decree.  In addition, Finance Minister Gil Díaz announced the government will maintain strict fiscal discipline and reduce spending further if tax collection or other revenue sources fall short of budget planning.

Inflation unchanged in April.  The fiscal adjustments have been welcomed by the Central Bank, since they serve to assist its efforts to further lower inflation.  Consumer prices rose 0.50% in April, in line with expectations.  The April consumer price increase was the lowest for that month since 1994 and the second slowest pace in nine months.  Food, drinks and tobacco drove price increases, whereas housing exhibited price declines amid lower gas and electricity prices.  Annual inflation remained virtually unchanged at 7.11% (March: 7.17%).   Core inflation, which increased by 0.54% in April, also remained stable at an annual 6.46%.  Panellists continue to pare their year-end inflation forecasts but even so, forecasts remain well above the Central Bank’s 6.5% target rate. 

Positive trade numbers.  According to revised numbers, the trade deficit reached US$ 642 million in March.  While this was well above preliminary numbers published two weeks earlier, the trade deficit remained substantially below the Consensus Forecast of US$ 800 million.  The revision was mainly due to higher imports of intermediate goods in the automotive industry.  Exports increased 5.2% to US$ 14.3 billion as a 7.8% increase in non-oil exports compensated a 17.8% drop in oil exports.  Imports increased 7.0% over March 2000 to US$ 14.9 billion, driven by a robust demand for consumer goods (+34.2% yoy) and healthy growth in capital goods (+15.4%).  Intermediate goods showed a very moderate growth rate of 2.3%, but remained in positive territory after March’s 5.8% contraction, providing some hope for a pick-up in the manufacturing industry.  As a result of the positive March trade data, panellists have revised their trade deficit forecasts for this year downward.

Peso strongest currency against US$.  The relatively low trade deficit numbers bode well for a moderate current account deficit in the first quarter and served to further bolster the peso.  Since 16 January, when the peso reached its weakest point this year, the currency has appreciated 7.6% in nominal terms to 9.23 pesos to the US$ on 11 May.  As a result, the Mexican peso was the world's second strongest currency against the US$ so far this year, according to a Bloomberg survey.  Panellists have further revised their year-end exchange rate forecasts downward.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Mexico.  For more details please click here.

For five-year forecasts, please click here.