IMF cuts Mexico's growth outlook, sees modest boost from reforms
MEXICO CITY, Oct 8 (Reuters) - The International Monetary Fund slashed its 2013 growth outlook for Mexico on Tuesday after a weaker-than-expected first part of the year, while it dialed back expectations for growth in Brazil next year.
The IMF said Mexico's gross domestic product (GDP) would grow 1.2 percent this year, down from a 2.9 percent expansion it forecast in July, due to low government spending, a drop in construction and slack U.S. demand for local exports.
Mexico's government has repeatedly revised its own outlook downward, most recently cutting its growth forecast to 1.8 percent this year. It said later that massive floods across the country in September would likely shave about 0.1 percentage points off GDP. Latin America's No. 2 economy grew 3.8 percent in 2012.
"Growth is projected to recover gradually and return to 3 percent in 2014, as manufacturing picks up on the back of a recovery in U.S. demand, public spending regains momentum, and ongoing structural reforms begin to bear fruit," the IMF said in its periodic World Economic Outlook.
The Washington-based IMF trimmed its outlook for Mexican growth to 3 percent in 2014 from an estimated 3.2 percent.
The IMF said its preliminary estimate of the effects of President Enrique Pena Nieto's reform program would lift annual average growth to between 3.5 percent and 4 percent in the medium term.
That is more conservative than the Mexican government's estimates that growth will expand to 5.2 percent by 2017 and even higher in the following years under the combined effect of proposed telecommunications, banking, energy and tax reform legislation.
The report did not provide further details on the IMF's analysis of Mexico's economic reforms.
Mexico's central bank unexpectedly cut its benchmark interest rate to 3.75 percent in September after growth contracted in the second quarter for the first time in four years. Policymakers are widely expected to cut the rate by another 25 basis points on Oct. 25.
The IMF held steady its forecast for GDP growth in Brazil, saying Latin America's biggest economy would grow by 2.5 percent this year. However, it cut back its outlook for 2014 to 2.5 percent from a forecast of 3.2 percent in July.
Brazil, where the economy expanded by only 0.9 percent last year, is battling stubbornly high inflation, even as the economy struggles to gain steam.
"Higher inflation has lowered real incomes and may weigh on consumption, while supply constraints and policy uncertainty may continue to constrain activity," the IMF said.