August 29, 2018 / 6:28 PM / a year ago

Mexico central bank cuts growth view, sees potential NAFTA deal as boon

MEXICO CITY (Reuters) - Mexico’s central bank lowered its growth expectations for 2018 and 2019 on Wednesday but said recent progress in the NAFTA trade talks could help lift the cloud of uncertainty dogging the nation’s economy.

A view of the facade of the Bank of Mexico office building in downtown Mexico City, Mexico, November 17, 2017. REUTERS/Henry Romero/File Photo

Speaking on Wednesday as the bank released its quarterly inflation report, Central Bank Governor Alejandro Diaz de Leon touted the trade pact struck between the United States and Mexico this week as “a very important step.”

But he underscored that a final deal to overhaul the North American Free Trade Agreement, which underpins some $1.2 trillion in annual trade between Canada, the United States and Mexico, remained weeks away, if not months.

“We are very optimistic that this agreement and this understanding to modernize the commercial relationship can be extended and finalized in the next weeks, months,” he said. “It would clearly be an element of uncertainty that would diminish considerably.”

A final agreement to revamp the 24-year-old trade pact could spark new investment and boost growth in Mexico, Diaz de Leon added.

Nevertheless, the Bank of Mexico flagged coming challenges for the nation’s economy, saying it expected the gross domestic product to grow between 2.0 and 2.6 percent for 2018, compared with estimates of 2.0 to 3.0 percent in its previous inflation report.

The bank also lowered the forecast for 2019, predicting growth of between 1.8 and 2.8 percent, down from a range of 2.2 to 3.2 percent.

In addition, the central bank hiked its inflation estimates for this year and next, predicting inflation would near the 3.0 target by the first half of 2020.

The Bank of Mexico said it expected inflation to register at 4.2 percent in the fourth quarter of 2018, up from its previous view of 3.8 percent.

The bank also raised its inflation estimate to 3.3 percent for the fourth quarter of next year, compared with 3.1 percent from its previous report.

The bank’s board said it would continue to adjust monetary policy if needed in an “opportune and firm” manner to reach the inflation target.

Reporting by Michael O'Boyle; additional reporting by Anthony Esposito; writing by Julia Love; Editing by Chizu Nomiyama and Richard Chang

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