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Economic
slump lowers inflationary expectations below the official inflation
target. The current economic downturn has translated
into subdued inflationary pressures. In May, consumer prices increased
0.23% (core price index: +0.41%), taking the annual inflation rate down to
6.95% from 7.11% in April. June consumer prices, released on 9 July, are
expected to increase 0.37%, which would further lower annual headline
inflation to 6.72%. Panellists have factored the more benign inflationary
environment into their forecasts, which have been slashed another 0.4
percentage points for this year. This is the first time that inflationary
expectations have dropped below the official Central Bank inflation target
of 6.5%. Meanwhile, interest rates (Cetes 28 days) have followed suit and
dropped to 8.92% by the end of June, the lowest rate since February 1994.
However, the Consensus considers the current low interest rate levels as
unsustainable and expects rates to move upward by the end of the year.
Trade
deficit is seen to widen as effects from global softening outweigh lower
domestic demand. The global softening and the slowdown
in domestic demand are feeding through to the external sector. According
to preliminary data, the trade balance registered a deficit of US$ 623
million in May, down from the US$ 813 revised trade deficit in April.
Exports contracted 4.7% over May 2000 to US$ 14.0 billion as a result of a
17.0% year-over-year contraction in oil exports and a 3.4% drop in non-oil
exports. The more pronounced drop in oil exports follows a substantial
decline in the oil price, which fell from US$ 24.5 per barrel of the
Mexican mix in May 2000 to US$ 20.0 per barrel in May 2001. In the twelve
months up to May, oil accounted for 9.3% of total exports. While the
growth rates are somewhat distorted by the very strong increase registered
in May 2000, they nevertheless confirm the trend of slowing exports. The
moving annual export growth rate has come down steadily from the maximum
24.0% in October 2000 to 12.1% in May and the moving quarterly growth rate
now stands at a meagre 2.2%. Imports dropped 3.6% year-over-year to US$
14.6 billion in May principally driven by weaker demand for intermediate
goods, which account for the bulk of imports, whereas consumer good
imports increased a whopping 29.0%. Maquiladora imports dropped 12.8%,
which augurs a further weakening in the manufacturing industry in the
months ahead. The moving annual trade deficit further increased to US$
9.7 billion and panellists see this trend continuing until the end of the
year.
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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