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Mexican Industrial Production Causes Disappointment

James Boston
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Mexican Industrial Production Causes Disappointment

The Mexican growth story has taken a bit of hit with the publication of the monthly Industrial Production numbers for the month of September. The figures just released reveal a fall of -1.0% in the monthly measurement from a level of 0.4% recorded in August, markets were disappointed as they had priced in a rise to 0.5% in these latest figures. The annual Industrial Production figure now stands at 3.0%, this is a healthy rise on the previous month’s reading of 1.4% but it had been expected to expand to 3.5% in today’s release.

The Bank of Mexico’s most recent poll of economists has revealed that optimism towards the economy’s outlook is diminishing, the latest survey of 38 leading economists expects the 2014 GDP growth rate to come in at just 2.3%, this is a measured drop from the results of the same poll conducted in September that anticipated a 2.5% growth rate for the year. Security issues in the country are being cited as contributing to a reluctance to invest, this is particularly true among international businesses and funds that are keen to take part in a reforming Mexico but will need assurances that the security situation is being adequately dealt with. The recent high profile case of the disappearance of 43 protesting students has returned Mexico’s security issues to the international spotlight and is putting pressure on President Enrique Pena Nieto’s administration to take strong actions to control crime.

Falling domestic demand has also been highlighted as weighing on the Mexican economy’s growth prospects. At the latest monetary policy committee meeting the Bank of Mexico opted to hold it’s base interest rate at 3%, this move came despite inflation, at 4.22% and rising, now being clearly above the Bank’s tolerance range of 2% to 4%. Although closely monitoring the situation, the Central Bank has taken the short term decision to put growth ahead of price stability, and this move has been welcomed as a necessary action to provide the Mexican economy the room it needs to naturally expand.

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