Private sector consumption primarily drives Mexican economic activity

Mexico’s economy continues to be structurally tied to the U.S. economy’s business cycle.  The Mexican economic activity is primarily being driven by private sector consumption, pushing the real GDP to grow by around 2.4 percent and 2.6 percent this year and next year, respectively, noted Scotiabank in a research note. The nation had to make many adjustments to public sector expenditures in order to deepen fiscal consolidation to bring public finances on a stable path. This has had modest adverse impacts on economic activity.

Moreover, continuous softness in industrial activity and manufacturing exports has also curved the external sector’s contribution to growth. The nation’s foreign trade activity prospects would be determined by the bilateral trade policies that the newly elected U.S. government would implement.

Meanwhile, the Mexican central bank has set-off a pre-emptive monetary tightening phase as a response to the rising inflationary pressures. Taking into account the expected rise in the policy-setting short-term rate in November, the reference interest rate might end this year at 5.50-5.75 percent and carry on in the ascendance through the first half of 2017, according to Scotiabank.

The Banxico has performed quite well in maintaining the headline inflation rate close to the mid-point of the 3 percent, plus or minus 1 percent tolerance range.