OECD Economic Outlook 69 - Biblioteca Hegoa

Mexico
Developments in individual OECD countries - 107
Output growth accelerated to almost 7 per cent in 2000, underpinned by robust demand in the United States and an easy
fiscal stance. Yet the strength of the peso and tight monetary conditions helped inflation to come down. The deterioration
of the current account was limited by improving terms of trade. Owing to the slowdown in the United States, GDP growth
is projected to weaken in 2001, regaining momentum thereafter. Inflation is projected to fall further, but the current
account deficit could widen significantly, as oil export revenues decline.
Sustained improvement in economic performance will require the maintenance of prudent macroeconomic policies.
Despite the United States slowdown, fiscal restraint is needed to take pressure off monetary policy and cool domestic
demand. In the structural area, the proposed tax reform should strengthen budget revenue, while reducing tax distortions.
Further steps to increase product market competition are also needed to enhance Mexico’s supply-side performance.
Real output growth reached close to 7 per cent in 2000, driven by persistently
robust exports to the United States and booming domestic demand. Retail sales and
consumer and investment goods imports were still expanding rapidly at the start
of 2001, but exports have shown some signs of slowing. Owing to high oil prices and
a strong peso, Mexico’s terms of trade improved, helping to stabilise the current
account deficit at around 3 per cent of GDP, despite the buoyancy of imports.
Foreign direct investment reached a record US$13.2 billion, financing three-quarters
of the current account deficit.
Following election-induced volatility in the first half of 2000, the nominal
exchange rate has remained strong, while real interest rates have moved up, helping
the disinflation process. Despite sharp increases in prices of farm products and public
goods near year-end, consumer price inflation had fallen to 9 per cent by December,
below the central bank target of 10 per cent. It continued to decline in the early
months of 2001, with core inflation dropping below 7 per cent in the first quarter.
Owing to booming activity and high oil-related revenues (still accounting for
one-third of budget revenue), a substantial windfall was recorded in 2000, which was
matched by higher public spending. The public sector deficit came in at 1.1 per cent
of GDP, close to target. While a part of the revenue windfall was used to repay public
Mexico
GDP growth reached close to
7 per cent in 2000…
… while inflation fell further,
helped by the strength
of the peso
After some easing last year,
fiscal policy has turned
restrictive
Inflation is coming down
The peso remains strong and real interest rates
have moved up
Per cent US$/pesos Per cent
20
18
0.14
30
16
14
0.13
25
12
0.12
20
10
8
0.11
15
6
4
2
Consumer price index
0.10
10
5
0
1998 99 2000 01
0.09
1998 99 2000 01
0
1
Core inflation2 Inflation is coming down
The peso remains strong and real interest rates
have moved up
Per cent US$/pesos Per cent
20
18
0.14
Exchange rate (left scale)
Real returns on 3-month Cetes (right scale)
30
16
14
0.13
25
12
0.12
20
10
8
0.11
15
6
4
2
Consumer price index
0.10
10
5
0
1998 99 2000 01
0.09
1998 99 2000 01
0
1
Core inflation2 Inflation is coming down
The peso remains strong and real interest rates
have moved up
Per cent US$/pesos Per cent
20
18
0.14
Exchange rate (left scale)
Real returns on 3-month Cetes (right scale)
30
16
14
0.13
25
12
0.12
20
10
8
0.11
15
6
4
2
Consumer price index
0.10
10
5
0
1998 99 2000 01
0.09
1998 99 2000 01
0
1
Core inflation2 Exchange rate (left scale)
Real returns on 3-month Cetes (right scale)
1. Consumer price index inflation, year-on-year percentage change.
2. Excluding food prices, education fees and prices controlled by or agreed with the government.
Sources: Bank of Mexico; OECD.
© OECD 2001