Mexico’s Central Bank Lowers Growth Expectations

The Bank of Mexico said it expects gross domestic product to grow between 2% and 2.5% this year, a slight reduction from the range of 2% to 2.8% forecast in August.

In its third-quarter inflation report, the central bank said it sees the economy continuing to recover, mainly as a result of strong demand for Mexican exports, while domestic demand is seen picking up gradually.

The new estimate comes ahead of Friday’s report on third-quarter gross domestic product, which the central bank estimates will have expanded2.2% from the year-earlier quarter and be up 0.6% seasonally adjusted from the second quarter.

For 2015, the Bank of Mexico lowered its growth estimate to a range of 3% to 4%, from 3.2% to 4.2%. Such recent economic overhauls as the opening of the energy industry to private investment, if implemented properly, should gradually support growth and have a positive impact in 2016, the bank added.

The central bank cut its benchmark interest-rate target to a record low 3% in June in response to a sluggish economy, but any consideration of further rate cuts has been constrained by a quickening of inflation to 4.3% and by expectations that the U.S. Federal Reserve will begin to raise rates after bringing its bond-buying program to a close.

Monetary tightening by the Fed pushes up U.S. yields, making emerging- market assets less attractive to investors and putting pressure on emerging- market currencies.

Speaking at a news conference Wednesday, Bank of Mexico chief Agustín Carstens noted that market expectations are for the central bank to start raising rates between June and August next year, around the time the Fed is expected to begin increasing rates.

He said any rate moves in the U.S. would factor into Bank of Mexico deliberations, but wouldn’t necessarily cause it to follow suit.

“We seek to take into account all the available information, there could be different factors that dictate one decision or another,” he said.

Mr. Carstens also referred to the central bank’s recent comments on the social unrest in Mexico following the disappearance of 43 students who were detained by police in southern Guerrero state in late September and handed over to members of a criminal gang, some of whom have told authorities that the students were killed. The disappearance has led to widespread protests, sometimes violent.

The central bank has said the unrest could hurt growth if it affects expectations and investment decisions. Mexico needs a significant improvement in its institutional framework to make the economy more efficient and to take advantage of the benefits of the structural changes, Mr. Carstens said.

“That requires a transformation that improves the rule of law, legal security, and in general strengthens institutions,” he said.

The Bank of Mexico reiterated Wednesday that it sees inflation measured by the consumer-price index ending the year around 4%, and that it will ease toward its 3% target in mid-2015 as the effects of this year’s tax increases wane.

Despite the slower growth forecast, the central bank increased its estimate of jobs that will likely be created this year to between 640,000 and 710,000, given strong gains already in the number of workers registered for health and other benefits with the Mexican Social Security Institute, a measure of formal private-sector employment.

The central bank sees the trade deficit ending this year at $4 billion, or 0.3% of GDP, while the current-account deficit will likely be $26 billion, or 2% of GDP. The trade balance could deteriorate in 2015 to a deficit of $11.5 billion, partly because of lower export crude-oil prices and a drop in oil export volume, the bank said.

Write to Anthony Harrup at [email protected]