Mexico Cuts 2016 Growth Forecast; Plans to Halve Budget Gap

  • President Pena Nieto plans to renominate Banxico's Carstens
  • Mexico to cut spending again next year after oil price decline

Mexico’s government cut its forecast for growth next year, while reiterating plans to reduce spending and halve the fiscal deficit.

The budget shortfall will narrow to 0.5 percent of gross domestic product, excluding investment by state-owned oil producer Petroleos Mexicanos and other national projects, Finance Minister Luis Videgaray told lawmakers Tuesday. Latin America’s second-largest economy will grow 2.6 percent to 3.6 percent next year, down from a March estimate of 3.3 percent to 4.3 percent, he added.

Mexico has been reducing outlays due to the lower price of oil, which historically accounts for about a third of government revenue, and after slumping crude output and weak U.S. growth led economic expansion to repeatedly miss the government’s forecasts.

The proposal "is a good compromise between doing enough fiscal consolidation en route to fiscal sustainability and trying to soften the blow to the economy," Carlos Capistran, Bank of America Corp.’s chief Mexico economist, said in an e-mailed response to questions.

The government will reduce spending next year by 134 billion pesos ($7.97 billion) after a cut of 124 billion pesos this year. Videgaray said the reduction for next year amounts to only about 100 billion pesos when taking into account 31.4 billion pesos in special revenue for the federal government from the central bank’s 2014 operational surplus.

The finance minister also said President Enrique Pena Nieto will nominate central bank Governor Agustin Carstens for a second six-year term on Wednesday, sticking with the man who has helped bring the inflation rate down to the lowest level in almost half a century.

The Finance Ministry predicts an average export price for Mexican crude of $50 per barrel for 2016 on 2.25 million barrels a day of production and an average peso level of 15.9 per dollar, stronger than the 16.8232 close on Tuesday, Videgaray said.

“The main goal of this package, given the international economic circumstances, is to preserve the stability of our economy,” Videgaray told reporters in Mexico City.

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