Mexico’s economic growth will quicken as the government increases spending in the second half of the year, Finance Minister Luis Videgaray said.
The economy grew at the slowest pace in more than three years in the first quarter after spending was contained after a new government took over in December, Videgaray said in an interview in London. President Enrique Pena Nieto took office on Dec. 1.
Investor confidence in Mexico has waned after the economy expanded less than analysts expected in the first quarter and government plans to overhaul the state-controlled oil industry were held up. Capital flows also have slowed on signs the U.S. Federal Reserve could scale back asset purchases as economic growth strengthens.
“We expect much more accelerated spending in the second semester,” Videgaray said. “The budget is there and the revenue is there.”
Mexico’s government spending fell about 7 percent in real terms to 1.16 trillion pesos, or $90 billion, in the first four months of 2013 compared to the year-earlier period, according to data from the central bank.
Mexico’s government reduced its forecast for growth this year to 3.1 percent from 3.5 percent last month after the economy grew 0.8 percent in the first quarter, the slowest pace since the 2009 recession. Grupo Financiero Banorte SAB, Mexico’s third-largest bank, cut its estimate for 2013 to 2.7 percent from 3 percent today.
The cost to protect Mexican debt against non-payment for five years with credit-default swaps has risen 43 basis points to 127 basis points in the past month, the most since 2009, according to data compiled by Bloomberg. That’s more than Brazil’s 33-point rise.
The peso’s one-month historical volatility, a measure of the magnitude of the currency’s fluctuations during the period, rose to 14 percent, the highest on a closing basis in 17 months, and the most among the region’s major currencies. The peso weakened today 1.0 percent to 12.8290 per dollar.
Videgaray said markets have already priced in a “good part” of the effect that the scaling back of so-called quantitative easing will have on Mexico.
The Federal Reserve’s unwinding of asset purchases “is something to be expected and we should be able to handle it in an orderly manner,” he said.
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