Banxico Cuts Mexico Growth Forecast and Stresses External Risks

Mexican policy makers lowered their growth forecast for this year, with the central bank’s Governor Agustin Carstens saying that considerable risks to the global economy remain.

Gross domestic product will expand 2 percent to 3 percent, compared with the 3 percent to 4 percent previously forecast, the bank said in its quarterly inflation report published today. Inflation will end the year close to 3.5 percent, before dropping to about 3 percent in 2014, policy makers said. Prices rose 3.53 percent in the 12 months through mid-July.

Policy makers voted unanimously to keep the key rate at 4 percent last month as the debate over stimulus policies in the U.S. fueled instability in global currency markets. At the same time, inflation has slowed more than forecast to within the central bank’s target range and analysts have lowered their 2013 economic growth forecasts in each monthly central bank survey this year to below 3 percent.

The possibility of the Fed easing its rate of bond purchases became “the most important change in the international environment,” policy makers said in the minutes to the last rate meeting released July 26. Some Banxico members said they remain watchful for “external financial shocks.”

Carstens told reporters today after the release of the report that Mexico’s economy has handled external shocks well because of its sound economic fundamentals.

The central bank left its growth forecast for 2014 at 3.2 percent to 4.2 percent, while estimating that the economy would create 450,000 to 550,000 jobs in the formal sector this year and 700,000 to 800,000 next year.

Economists expect the economy to expand 2.7 percent in 2013, according to the median forecast in yesterday’s bi-weekly survey by Citigroup Inc.’s Banamex unit.

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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