After growing by 2.3% in 2015, real GDP is projected to grow in excess of 3% in both 2016 and 2017. The economy will benefit from a stronger US economy, the depreciation of the peso, and the easing of problems in the construction sector. The implementation of important structural reforms has also improved the business climate. Consequently, investment is picking up, and manufacturing activity is gradually accelerating, supporting a robust formal job market, boosting household incomes and consumption growth.
Monetary policy remains supportive, although interest rates will need to be raised once the US Federal Reserve raises its rates to forestall potential capital outflows. The budget deficit is being narrowed, but low oil prices may create some difficulty in achieving the objective by 2017.
Recent reforms have helped to address environmental challenges. The introduction of a carbon tax is an important breakthrough, but it will need to be evaluated and likely raised to more fully take account of pollution externalities. Low oil prices will allow the phase-out of the gasoline price setting mechanism to be advanced before 2018.