Mexico GDP growth in 2016 likely to be at 2.4%

Mexico's federal government deficit is reduced to 2.7% of GDP from 3.1% in 2015. The federal government is planning to reach a deficit of MXN520bn in 2016, less than the deficit of MXN573bn planned for 2015 (3.1% of GDP). The external indebtedness ceiling is maintained in USD6bn. 

"The government is proposing to liberalize gasoline prices in 2016, putting downward pressures on inflation in that year. Originally, the government plan was to implement this liberalization of prices in 2017. However, the government is pushing this date forward to next year", says Barclays. 

Currently, retail gasoline prices are about 20% higher in Mexico than in the US, this means price reductions are possible next year, which could have an important positive effect on inflation. The effect on growth should be limited. As the budget came in line with expectations with no relevant changes to the one in previous year, the effect fiscal changes have on growth will be small. 

"The reduction in public investment might be partially compensated by the new financial vehicles that will be launched this year, in which pension funds could be investing in public projects traded in the equity markets. Also, some fiscal measures should provide a boost to private investment. 2016 GDP growth is forecasted at 2.4% y/y", added Barclays.