Mexican economy unlikely to regain momentum before 2017

Mexican economy proved strong amidst a challenging environment until the beginning of 2016 because of strong fundamentals. However, the economic outlook is becoming cloudier, said Commerzbank in a research note. Following a robust economic growth pace in the first quarter of 2016, the Mexican economy shrank in the second quarter by 0.3 percent on sequential basis, based on the first estimates.

Corporate sector’s leading indicators have recently hinted at further slowdown. Mexican economy gains from the weak peso, which improves the Mexican firms’ price competitiveness. But several factors are also causing headwinds, which include the severe rise in interest rates and government’s spending cuts.

The forthcoming US elections are adding burden too as they are stoking uncertainty regarding future economic relations.  The close economic relations with the US that have developed under NAFTA have assisted the Mexican economy to ease the adverse impacts of the decline in oil price. The Mexican economy is unlikely to gather momentum again before 2017, according to Commerzbank.

At the start of 2016, consumer price inflation in the country accelerated at the start of 2016 and has rather been trending sideways recently. CPI came in at 2.5 percent in June on a year-on-year basis, moving in the lower half of the Bank of Mexico’s target corridor of 2 percent to 4 percent. Until now, the weak peso has not been able to accelerate inflation to any noteworthy extent.

“We therefore expect the inflation rate to remain well within this band in 2016 and 2017”, added Commerzbank.