Private consumption and services sector to drive Mexico’s economic growth in 2016-2017

The Mexican economic outlook for 2016-2017 seems to look promising. Domestic consumption continues to mainly drive the economic growth. Certain external factors are underpinning the economic outlook of Mexico including rebounding conditions in the US because of strong employment, firm banks and monetary stimulus. Mexico continues to be susceptible to the structural changes impacting global energy markets and oil price gyrations.

Structural reforms for energy sector were not able to avert a sharp decline in production of crude oil. Mexico’s construction sector is expected to expand; however, it will continue to be sensitive to credit flows to residential housing and public sector investment adjustments, said Scotiabank. In all, the services sector and private consumption will continue to mainly drive domestic economic growth in 2016-2017, noted Scotiabank.

“The Mexican economy will likely expand by 3.1% in 2017 up from 2.3% in 2016”, added Scotiabank.

Price stability continues to be a support for macroeconomic strength. The Bank of Mexico has highlighted several times that inflation expectations continue to be well anchored. The central bank is likely to tighten its monetary policy in the future. It remains vulnerable to developments in exchange rate and US Fed’s monetary policy changes.

Meanwhile Mexico’s fiscal outlook continues to be challenging, according to Scotiabank. The collapse in oil prices revealed the structural deficiencies of PEMEX. The fiscal reform aided in cutting the reliance on oil-related revenue while compelling authorities to carry out budget cut of MXN 132 billion. Meanwhile, the current account deficit is expected to decline in the coming 18 months, easing pressure on the currency, said Scotiabank.