MEXICO CITY (Reuters) - Mexico’s economy likely picked up speed in the second quarter, helped by signs of improving domestic consumption, and growth could be stronger in the second half of the year, a Central Bank deputy governor said on Monday.
Manuel Sanchez, one of five governors on the Bank of Mexico’s board, told Reuters in an interview that the economy appeared to have grown slightly more than expected in the second quarter.
“It seems that the economy is on a path of very, very gradual improvement, still very preliminary,” Sanchez said.
Mexico’s central bank cut its benchmark interest rate to a record low of 3 percent in June after weak growth in the first quarter. Policymakers then held the rate steady at their July 11 meeting, highlighting signs of stronger economic growth.
On top of continued strength in exports, Sanchez said, there were signs of firmer domestic consumption and more investment in the second quarter. “I would like to think that this is a prelude to a more solid recovery.”
Mexico sends nearly 80 percent of its exports to the United States and a harsh winter hit exports early in 2014. Public spending on infrastructure projects, stronger growth in the United States and the approval of important telecommunications and energy legislation could help lift the economy in the second half, Sanchez said. “I think this could give the Mexican economy more vigor in the second part of the year,” he said.
However, Central Bank Governor Agustin Carstens said in June that the bank could revise down its current growth forecast for 2014 of between 2.3 percent to 3.3 percent.
Sanchez would not comment on whether the bank was still likely to cut its forecast, noting that policymakers will revise their outlook in a quarterly inflation report due on August 13.
Mexico’s annual inflation rate ticked up in June to a three-month high of 3.75 percent, but remained below the central bank’s 4 percent ceiling. Mexico’s central bank targets a 3 percent inflation rate, plus or minus one percentage point. Inflation expectations for next year are currently around 3.5 percent, according to a poll from Banamex earlier this month. Sanchez said a government plan to slow the pace of gasoline price hikes next year should help push inflation toward 3 percent at the start of next year.
“The important thing is that we arrive to where inflation fluctuates sufficiently close to 3 percent, a bit above, a bit below, most of the time, and it appears that we could finally be close,” Sanchez said.
Reporting by Michael O'Boyle, Alexandra Alper and Luis Rojas; Editing by Dan Grebler