Growth is set to pick up during the second half of 2009 and accelerate further through 2010, reaching quarterly growth rates of above 4% in annualised terms. Inflation has remained relatively high, despite the sharp drop in demand, largely due to sticky administered prices. This persistence in inflation has limited the scope for monetary easing.
The fiscal response to the crisis has been welcome, although it could have been better targeted. While the room for further stimulus is limited, Mexico should not rush into fiscal consolidation and aggravate the recession needlessly. To avoid adverse market reactions to breaking the balanced budget rule, a clear medium-term fiscal strategy should be formulated and communicated. To help boost activity, the central bank should use the room it has for cutting policy rates further, while keeping an eye on the exchange rate and possible exchange-rate pass-through into consumer prices.
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©OECD Observer No 274, July 2009