Mexican economy unlikely to regain momentum before 2017

The Mexican economy has lost its momentum this year in spite of strong fundamentals. After the economy grew at a strong pace in the first quarter sequentially, the economy shrank in the following quarter by 0.2 percent. Leading indicators released recently for the corporate sector shows stabilization.

The Mexican economy enjoys decent tailwinds from the weaker Mexican peso that enhances the firms’ price competitiveness; however, there are several factors causing headwinds. The factors include a surge in interest rates, low oil price and the spending cuts by the government. Moreover, the upcoming presidential elections in the U.S. are providing additional burden as they are stoking uncertainty regarding further economic relations, particularly in case Trump wins.

The close economic relations with the U.S developed under NAFTA have assisted Mexico so far to ease the negative impacts of the oil price slump. The Mexican economy is unlikely to regain momentum before 2017, noted Commerzbank in a research report.

Meanwhile, consumer price inflation acceleration during the start of 2016, but has been trending sideways recently. It was at 2.7 percent in August as compared with the earlier year. Thus it is still moving in the lower half of Bank of Mexico’s target corridor of 2 percent to 4 percent. Till now, the weak peso has not been able to accelerate inflation to any noticeable extent. Hence, Mexican inflation is expected to remain within this band in 2016 and in 2017, added Commerzbank.