Mexico Reduces Growth Forecast Despite Lower Than Expected Inflation Figures

| Nov. 11, 2011 |

Published by Minyanville

Despite lower-than-expected inflation figures for October, Mexico’s Central Bank has reduced its growth forecast for both this year and next. Central Bank Chief Agustín Carstens added that an interest rate cut might be on the cards, pending events across the globe’s markets.


GDP is likely to expand between 3.5% and 4.5% this year, according to the Bank, lower than its August prediction of between 3.8% and 4.8%. Next year’s growth is likely to slow to between 3% and 4%, again down from previous expectations.


“We do not see a recession but we do see a deceleration in economic activity,” Carstens said in the organization’s quarterly inflation report. He added that the current interest rate of 4.5%—held since 2009—was low enough to support growth yet high enough to keep inflation under control.


Figures for inflation were promising. The 12-month CPI up to October is now at 3.20%. “We’re expecting a relatively favorable inflation performance,” Carstens added.


Analysts are expecting the 4.5% rate to be cut in early December following Brazil’s lead across emerging market nations. “We continue with a very benign inflation scenario," Gabriel Casillas, an economist at JPMorgan in Mexico City, told Reuters. “We are expecting a cut in December.”


HSBC’s Chief Mexico Economist Sergio Martin disagrees. He explained to the Financial Times that with inflation likely to rise, the peso so reliant on the world’s economies and with GDP looking to rise ever more slowly, it would be a bad time to cut interest rates. He argued that the world’s markets may suffer even more into next year, leaving little room for further cuts.


While the Mexican economy does not look to be edging into recession, President Felipe Calderón is keen to catalyze it. Targeting next weekend, the president will be stimulating the country’s domestic economy as an alternative to dependence on the United States’.


“It will be the cheapest weekend of the year,” Calderón told reporters in Mexico City, announcing the plan whereby major retailers have been encouraged to launch sales and some government officials will even receive their year-end bonuses six weeks early. 


The nationwide sale is cunningly timed to precede Black Friday, the Friday after Thanksgiving in the United States—the biggest shopping day of the year and the beginning of Christmas sales.


“We're looking to keep customers who cross the border, so their [spending] stays in Mexico,” Ernesto Sandoval, president of the Monterrey Trade Association told Reuters.


Drug War

Calderón’s war on drugs received yet another damning indictment this week from Human Rights Watch (HRW). The organization accuses security forces in Mexico of committing widespread human rights violations including waterboarding, sexual torture and death threats.


“Instead of reducing violence, Mexico’s war on drugs has led to a dramatic rise in killings, torture and other appalling abuses by security forces,” Jose Miguel Vivanco, Americas director at HRW told Reuters. “[This] only make the climate of lawlessness and fear worse in much of the country.”


Since Calderón came to power in December 2006, more than 45,000 people have lost their lives. The subject will forever haunt the president who has made it the keystone of his tenure.


A statement from his office simply said that the cartel and gang members are the main threat to human rights and therefore the government is “ethically and legally obliged to use every means at its disposal.”


Kenneth Roth, Executive Director of HRW, told the Financial Times: “Nobody thinks that [Calderón] is ordering abuses, but he is tolerating them through a series of misguided policies.”


Mexicans are reminded of those misguided policies every morning as they walk past newsstands to see pictures of dead bodies on the front pages staring back at them.

It is for this reason that Calderón’s National Action Party (or PAN) is extremely unlikely to stay in power next year—handing it back to the Institutional Revolutionary Party (or PRI).


Streaming War

The world’s richest man, Mexican Carlos Slim, desperate to make it into the broadcast market yet unable to get past regulators, has taken a backdoor. His companies have begun to stream news, sport and cultural programming online, for free and out of the purview of the regulators that have so long kept his companies in line.


“It’s as if I went right outside a store and started selling pirated music and movies, and told them, ‘It’s okay. I downloaded them from the Internet,’” said Luis Niño, a spokesman for a number of companies owned by Ricardo Salinas, Slim’s biggest rival.


The long battle between Slim and his rivals is unlikely to reach an end anytime soon.