Boston, MA -- (ReleaseWire) -- 05/22/2014 -- We remain optimistic toward Mexico's long-term growth outlook on the back of a booming manufacturing sector, an increasingly strong private consumer and favourable demographics.
The passage of energy sector reform will bolster sentiment towards Mexican assets and contribute to stronger real GDP growth in the coming years.
Major Forecast Changes
After real GDP growth came in at 1.1% in 2013, below our initial 1.6% estimate, we have revised our 2014 growth forecast. We now forecast real GDP to expand by 3.3% in 2014, compared to 3.5% previously.
We have revised our 2014 average exchange rate forecast from MXN12.55/US$ to MXN12.85/US$, following a weaker peso than initially expected in Q114, when it averaged MXN13.23/US$.
We revised our 2014 fiscal deficit forecast from 3.1% of GDP to 3.0%, after the fiscal shortfall came in below our 2.5% estimate last year, at 2.5% of GDP.
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Key Risks To Outlook
A further deterioration in the construction sector poses significant downside risk to our 2014 real GDP growth forecast. We expect the sector to recover, after contracting for several consecutive quarters since late 2012. However, homebuilders remain in a critical state financially, which could lead to an additional deterioration of the sector.
A significant delay in secondary legislation for energy sector reform, or a bill that fails to meet investor expectations, would likely lead to a significant deterioration in sentiment, which could result in weaker investment than we expect, as well as currency weakness.
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