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After decelerating in late 2016, the pace of economic activity is projected to pick up somewhat, mainly reflecting stronger exports. Improved business confidence will support the upturn in investment. Consumer spending, the engine of growth in the past two years, will grow at a slower pace, as rising inflation damps consumers’ purchasing power and credit conditions tighten.
At 6.75%, the monetary policy interest rate is at its highest level in eight years, and is projected to remain so to contain the transitory surge in inflationary pressures. Going forward, monetary policy should continue to consider all the determinants of inflation and its expectations, particularly the pass-through to other prices from exchange rate depreciation and gasoline price adjustment, as well as the relative monetary policy stance with the US and the output gap. To slow the rapid rise in public debt, fiscal consolidation is projected to continue.
The Mexican economy has benefitted from open borders, foreign direct investment inflows and integration in global value chains. Remaining barriers to foreign investment and services trade should be lifted to move up in global value chains, increase the diversification of exports and strengthen geographical linkages. However, certain locations and categories of workers have benefitted less from open borders than others. Improving education outcomes and reducing informality would help to spread the benefits of globalisation more widely.
Economic Survey of Mexico (survey page)