Mexico City, Mexico — The IMF cut Mexico’s growth expectation in 2018 to 1.9 percent as it expects domestic demand to weaken next year as a result of uncertainty over NAFTA.
The International Monetary Fund (IMF) reports domestic consumption will support the Mexican economy this year, but by 2018, there will be weakening domestic demand coupled with uncertainty surrounding the election, said Costas Christou, head of IMF.
“Real GDP growth forecast for 2018 was revised downward as we forecast domestic demand will weaken for the remainder of 2017 and early next year because of uncertainty over the duration and outcome of the NAFTA negotiations, but also because of the uncertainty surrounding next year’s elections in Mexico, “ he explained. .
He added that once uncertainty dissipates with a mutually beneficial NAFTA result, growth would accelerate in the second half of 2018.
The international agency cut growth expectations for Mexico in 2018 to 1.9 percent, 0.1 percentage point below its forecast in April and the update in June.
“This projection assumes that the NAFTA negotiations end with a mutually beneficial outcome and growth begins to increase in the second half of 2018,” said the specialist and added that in a scenario of failed renegotiation of the trade agreement, it would be very difficult to evaluate the impact.
To accelerate growth, he says Mexico has several paths, but the priority is the implementation of structural reforms.
“It is important for the authorities to persevere structural reforms to lay the foundations for higher, sustainable and inclusive growth,” he said, adding that within this implementation process priority should be given to improving governance, security and state law since these reforms will attract domestic and foreign investment.
On the other hand, improvements in the efficiency of public spending would provide room in the budget for public expenditure on infrastructure, while a modernization of NAFTA would help further integrate the North American market, thus benefiting the three partners.
He reiterated the recommendations that the agency has been making to the country in fiscal matters like strengthening the tax collection of the non-oil sector.
“This could be achieved through efforts to reduce tax evasion, expand the tax base and reduce informality. There is also scope for raising property tax revenues, “he said.
As for establishing a fiscal council, an adequately funded and non-dependent institution, he would support the Government’s commitment to fiscal responsibility, strengthen the political debate and increase accountability.