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Consensus
more optimistic about economic prospects
The improved
international setting and the recent uptick in economic activity could
translate into a revival of the domestic economy. Consensus Forecast
panellists have reflected the recent positive developments by raising
their forecasts for economic growth this year another notch over last
month to 3.9%, which is just short of the latest 4.0% government estimate.
The panel also lifted growth prospects for next year one tenth of a
percentage point to 3.5%, which remains below the 3.8% government forecast
underlying the budget proposal.
Central
Bank tightens monetary policy as headline inflation continues to rise
In August, consumer prices increased 0.62%. The actual rate was
exactly double the rate expected in last month’s Consensus Forecast.
Higher food, beverage and tobacco prices constituted the main drivers for
the August increase. Because of the August price spike, annual
headline inflation rose from 4.5% in July to 4.8% in August, the highest
rate since April 2003. The majority of the price increase was
concentrated in the price categories that experience more erratic shifts.
Therefore, the core inflation index, which excludes volatile groups such
as fresh fruits and vegetables as well as fuels, increased at just
one-third the pace of the headline inflation index, namely 0.22%.
Consequently, annual core inflation remained unchanged over the 3.7%
registered in July. Thus, even though headline inflation
exceeds the upper limit of the Central Bank’s one percentage point
tolerance around a 3.0% central target rate for this year, the core
inflation rate is still within the established limits. Nevertheless,
on 27 August, the Central Bank decided to raise its money market "short"
(corto) to 45 million pesos per day from 41 million pesos. An
increase in the corto reduces overnight lending to banks and indirectly
drives up interest rates. This was the fifth time this year
the Bank has acted to stem accelerating inflationary expectations.
Despite the continued tightening, Consensus Forecast panellists lifted
their forecasts for inflation over last month. Panellists see
year-end inflation at 4.2%, up one tenth of a percentage point compared to
last month’s forecast. The forecast for 2005 remained unchanged at
3.8%.
Current
account deficit shrinks in second quarter amid increased transfers from
Mexicans abroad
In the second
quarter, the current account balance recorded a deficit of US$ 499 million,
equivalent to 0.3% of GDP. The deficit was significantly below the
US$ 1.8 billion deficit registered in the preceding quarter and below the
US$ 1.6 billion deficit (1.0% of GDP) observed in the second quarter last
year. The decline over last year was the result of a higher surplus
in the transfers balance and a lower deficit in the trade balance.
The transfers surplus increased from US$ 3.6 billion in the second quarter
2003 to US$ 4.6 billion in the second quarter 2004. The increase
mainly reflects higher transfers from Mexicans living abroad, which grew
by 29.1% to US$ 4.5 billion. In the recent past, these transfers
have become an increasingly important source of funding for Mexico and in
the first half of the year, the amount was equivalent to 81% of oil
exports or 2.4% of GDP. The annual current account deficit dropped
from US$ 8.8 billion in the first quarter to US$ 7.7 billion in the
second. Reflecting increased transfers and healthy export growth,
Consensus Forecast panellists have drastically lowered their forecast for
this year’s current account deficit from last month’s US$ 11.6 billion
to the current US$ 9.7 billion.
Trade
deficit shrinks
amid higher oil prices and increasing demand from United States
The deficit
in the trade balance dropped from US$ 1.4 billion in the second quarter
2003 to US$ 931 million in the second quarter this year, as exports
increased at a quicker pace (+17.5% yoy) than imports (+15.8% yoy). In
part, the increase reflects higher oil prices, which boosted oil exports
by 34.1% over the same quarter last year. In the second quarter, the
price for the Mexican mix of crude oils was 34.7% above the same period
last year. However, non-oil exports also increased a very strong
15.6% over the second quarter last year, the highest increase in the last
three years. The rise in non-oil exports is the result of higher
external demand, particularly from the United States. Import growth
was concentrated in intermediate goods, which mainly serve as input for
the export-oriented manufacturing industry (+16.1% yoy). Imports of
consumer goods also grew at a fast 21.8% pace, while capital goods, on the
other hand, expanded by ‘only’ 8.1%. |
