By Sarah Morland
MEXICO CITY (Reuters) -The Bank of Mexico cut its forecast for economic growth this year and next, according to the central bank’s quarterly report released on Wednesday, citing weaker foreign manufacturing demand while inflation remains stubborn.
The central bank for Latin America’s No. 2 economy now expects 2024 gross domestic product growth of 1.5%, down from a previous forecast of 2.4%, and growth of 1.2% next year from a prior forecast of 1.5%.
Banxico, as the central bank is known, said it had reduced this forecast due to second-quarter growth that landed “significantly” below forecasts, noting external demand should remain soft due to expected weakness in the construction and U.S. manufacturing sectors.
“Economic growth should be supported by public spending and private investment in the long-term,” bank Governor Victoria Rodriguez said in a call, saying that U.S. manufacturing should recover and help boost growth next year.
Official statistics last week showed that Mexico’s GDP expanded 0.2% in the second quarter from the previous three months, reinforcing a slowdown trend seen since late last year.
The monetary authority raised its inflation forecasts and said it sees the balance of risks regarding inflation as biased to the upside, after previously regarding this as balanced.
However, it maintained its forecast that inflation should converge toward its 3% target by the fourth quarter of next year.
For this year, Banxico edged up its fourth-quarter core inflation forecast for this year to 3.9% from 3.8%, while headline inflation is expected to hit 4.4% by the last quarter of this year, up from a prior guidance of 4%.
The central bank pointed to expected price rises affecting produce and energy, as well as stubborn services inflation, which the report said “remains high without showing a clear sign of going down.”
Annual inflation ran at 5.16% in the first half of August, gradually cooling from a two-decade peak in 2022 while remaining stubbornly far from the 3% target.
However, the bank said in its report it expects the inflationary environment to allow discussion of further cuts to the benchmark interest rate.
Earlier this month, Banxico lowered its benchmark interest rate by 25 basis points to 10.75% in a divided vote, signaling that prices could still rise higher than previously expected.