Finance Secretary González. Finance Secretary González: prudent policies.

IMF ups forecast from 1.9 to 2.3% for 2018

Spillover from US tax reform will help Mexican economy, fund says

The International Monetary Fund (IMF) has raised its forecast for economic growth in Mexico for both this year and next, saying that tax cuts and projected higher growth in the United States are likely to benefit U.S. trading partners.

The organization said this week that it expected Mexico’s gross domestic product (GDP) to grow by 2.3% in 2018, up from its previous projection of 1.9%.

For 2019, the IMF projected even stronger growth of 3% for the Mexican economy, an increase of 0.7% on its prior forecast.

“. . . The U.S. tax reform and associated fiscal stimulus are expected to temporarily raise U.S. growth, with favorable demand spillovers for U.S. trading partners — especially Canada and Mexico — during this period,” the IMF said in its World Economic Outlook Update.

The U.S. economy is expected to grow by 2.7% this year and 2.5% in 2019, the IMF said, adding that growth in Mexico’s northern neighbor would likely start to weaken after 2022.

The organization also upwardly revised global growth forecasts for this year and next, saying the world economy would grow by 3.9% in both 2018 and 2019. Both figures represent a 0.2% increase from its last update in October.

In an interview with Mexican news agency Notimex, Finance Secretary José Antonio González Anaya recognized that the positive economic outlook for the United States would benefit Mexico but said that that “prudent” macroeconomic management and structural reforms were even more influential.

“I believe that above all Mexico has benefited from these prudent policies and this macroeconomic management that has been carried out in recent years,” González said.

Opening up the energy sector to foreign and private investment is one of the most prominent — and controversial — reforms this administration has undertaken.

In the final year of Enrique Peña Nieto’s presidency, González said, his aim would be to “maintain conservative and prudent macroeconomic management so that we have a stable economy and a smooth political transition.”

He also praised the work of his predecessor and now presidential aspirant José Antonio Meade, saying that he had “led impeccable macroeconomic management [by taking] difficult and sometimes unpopular decisions.”

Those decisions, he said, enabled the IMF to now raise its outlook for economic growth in Mexico.

The new IMF forecast will go some way to allaying fears that the U.S. corporate tax cut would have a negative impact on the Mexican economy.

The head of the United Nations Economic Commission for Latin America and the Caribbean (Eclac) said last month that U.S. fiscal reform would impact on the Mexican economy because Mexico has little room to adjust its own tax rates.

Some analysts said that Mexico could lose foreign investment as a result, although the federal government has talked up Mexico’s new Special Economic Zones (SEZs), arguing that they will have even more competitive tax rates.

There are also concerns that a renegotiated North American Free Trade Agreement (NAFTA), or even the termination of the trilateral treaty, could have a negative impact on Mexico’s economy.

Officials from Mexico, the United States and Canada are attending the second to last round of renegotiation discussions in Montreal, Canada, this week.

Source: El Financiero (sp), Forbes México (sp)

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