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Growth is projected to pick up to 2¾ per cent by 2020. Low unemployment, strong remittances and the recovery of real wages will support household consumption. Investment, which has been persistently low, will strengthen on the back of announced public investment plans and increased confidence associated with the US-Mexico-Canada trade agreement. Export growth will decline owing to less favourable global conditions, especially in the United States. Inflation has been pushed up by rising energy prices, but expectations and core inflation remain anchored and within the central bank’s target band. Informality is declining slowly but remains elevated, contributing to persistently high inequalities and low productivity.
Monetary policy is projected to ease slightly as inflation gradually moderates. Risks to inflation are considerable, stemming from energy prices and renewed peso depreciation pressures. Inflation expectations remain well anchored. The authorities would need to raise interest rates should these risks produce higher inflationary pressures. Maintenance of fiscal discipline is important to keep the debt-to-GDP ratio on a declining path. However, large social needs may require better targeting of expenditures and increasing currently low tax collection. Broadening the tax base and changing the mix could also reduce informality.
1. Core inflation excludes energy, agricultural, and administered prices.
Source: OECD Economic Outlook 104 database; and Central Bank of Mexico.
Economic Survey of Mexico (survey page)