President Vicente Fox's Administration Insists on Optimistic Economic Growth Projections for This Year

SourceMex Economic News & Analysis on Mexico, May 7, 2003 | Go to article overview
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President Vicente Fox's Administration Insists on Optimistic Economic Growth Projections for This Year

President Vicente Fox's administration remains optimistic that the Mexican economy can attain a projected GDP growth of 3% for 2003 even though the economic indicators for the first quarter of the year remain uncertain.

Some private analysts like Grupo Financiero Banamex- Citigroup say economic growth was minimal during the first quarter of the year because of a sharp drop in exports of manufactured products as a result of uncertainties ahead of the US attack on Iraq. An increase in oil-export revenues, however, helped muffle the impact of reduced manufactured exports (see SourceMex, 2003-02-26).

Armando Baqueiro, director of economic research at the Banco de Mexico (central bank), points to indications that Mexico actually attained a GDP growth of 2.6% in January- March. The bank is scheduled to release official GDP statistics for January-March on May 15.

Baqueiro and other central-bank officials said the unstable global situation, including the impact of the conflict in Iraq and the downturn of the Asian economy resulting from the outbreak of Severe Acute Respiratory Syndrome (SARS), will put a damper on global economic growth, including in Mexico, for the rest of the year.

Speaking to reporters in late April, Banco de Mexico chief governor Guillermo Ortiz Martinez said economic growth will be less than expected globally, perhaps at 1.5% to 2% for the US and only about 1% for Europe. "And Japan faces a very difficult scenario because of the outbreak of SARS," said the central-bank governor. The sluggish global economy will almost certainly limit Mexico's economic growth to no more than 2.4% or 2.5%, said Ortiz.

Even with the less-than-optimistic report from the Banco de Mexico, the Fox administration is holding on to its forecast of 3% growth for the year. Various Cabinet officials, including Fox's chief adviser Luis Sojo Aldape, Economy Secretary Fernando Canales Clariond, and Labor Secretary Carlos Abascal Carranza, repeated this projection at various settings during April and May.

Sojo went as far as to predict that Mexico's economic performance in the January-March quarter would be "the best" among the past nine quarters, and would even surpass the US GDP growth for the same period. "This increases the probability that we'll attain the 3% growth," he said.

Similar statements came from officials at the Secretaria de Hacienda y Credito Publico (SHCP). "There is no reason not to believe that the economy will recover in the second half of the year now that the conflict in Iraq is no longer a factor," said Andres Conesa, the SHCP's director of financial planning.

Government's inflation target already in jeopardy

The administration's target of 3% annual inflation is also in jeopardy because of trends during the first quarter of the year. Accumulated inflation for January-March was already at 1.32%, meaning that the monthly consumer index would have to average about 0.18% each of the remaining months for the administration to meet its target of 3%.

Some private forecasters like the Consejo Coordinador Empresarial (CEESP) say annual inflation of just below 4% is still possible for this year.

Administration officials, however, continue to promote their target of 3% annual inflation. "Everything will depend on the level of wage increases during the rest of the year," said Finance Secretary Francisco Gil Diaz.

A key factor for inflation this year will be the cost of electricity and gasoline. High prices for both these utilities contributed to a higher-than-expected inflation rate of 0.63% in March.

Most forecasters see GDP growth at 2.5% or less

The administration's optimism about the economy does not match the projections from private economists and international financial organizations. For example, the Mexico City-based Consultores Internacional (CI) and the Consejo Coordinador Empresarial (CEESP) each has forecast GDP growth at only about 2% this year, slightly below the rates of 2.

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