(Reuters) – The Mexican economy faces increased risks as the U.S. Federal Reserve rolls back its massive stimulus, but the government will for now stick with its forecast for 3.9 percent growth this year, a top official said on Wednesday.
Data last month showed the economy slowed sharply in the fourth quarter of 2013, dragging annual growth to a four-year low and prompting analysts to lower forecasts for 2014.
Fears of a slowdown grew after factory exports fell for a fifth month in a row in January and consumption waned.
However, Ernesto Revilla, chief economist of Mexico’s finance ministry, said more data was needed to determine whether
a revision to the government’s growth forecast would be necessary.
“It’s still too soon to change our forecast,” he told Reuters in an interview, adding that the ministry did not begin revising down its growth forecasts last year until after first quarter gross domestic product (GDP) data was released.
Mexico originally forecast growth of 3.5 percent in 2013 before cutting it step by step to just 1.3 percent. In the end, Latin America’s No. 2 economy grew by just 1.1 percent.
Revilla said stronger U.S. growth and more robust government spending in Mexico would aid the economy in 2014, despite weak U.S. demand for Mexican exports early this year due to a winter chill that hit manufacturers north of the border.
But Revilla said deepening internal and external challenges have created “more elevated risks” for Mexico.
“There is risk associated with the tapering and the volatility that this can provoke in financial markets,” he said.
As the United States economy has improved, the Fed has cut $20 billion from its $85 billion in monthly bond-buying stimulus, a program that had underpinned investor appetite for riskier, higher-yielding emerging market assets.
Congress has not yet approved legislation to flesh out economic reforms, posing a further risk to growth, Revilla said.
President Enrique Pena Nieto has pinned his hopes of faster growth on measures that aim to open the telecoms sector and the oil and gas industry to more competition. However, so-called secondary laws to implement those reforms are still pending.
Despite the headwinds, Revilla sees signs pointing to strength later this year, such as the first improvement in consumer confidence in six months.
“We already have green shoots,” he said. “We should see the economy growing in a sustained way in the second quarter…or in the second half of the year.”
–Courtesy of Reuters