Mexico economy still strong: cenbank

MEXICO CITY Tue Apr 1, 2008 3:39pm EDT

1 of 2. Guillermo Ortiz, Governor of Mexico's Central Bank, speaks at the Reuters Summit in Mexico City March 31, 2008.

Credit: Reuters/Daniel Aguilar

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Mexico economy still strong

Tue, Apr 1 2008

MEXICO CITY (Reuters) - Mexico's economy has yet to suffer a significant slowdown despite a feared recession in the United States, as industrial output and investment stay fairly healthy, the central bank governor said on Monday.

Experts warn that a drop in the U.S. economy will hurt Mexico more than others in Latin America, but Gov. Guillermo Ortiz, at the Reuters Latin America Investment Summit in Mexico City, said recent data suggested Mexico is in relatively good shape.

"So far this year, we haven't really felt an important slowdown in Mexican economic indicators," he said.

"Figures for consumption, as well as investment, industrial production and foreign trade point to a first quarter with relatively strong activity," Ortiz said, although he predicted the period would be slower than it was a year ago.

Easter, a major Mexican holiday, fell this year in the first quarter, which will add to the slight cut in economic growth compared to the same period in 2007, when the week was in April, Ortiz said.

The central bank is under pressure to cut interest rates to shore up economic growth, seen taking a hit this year from lower demand from the United States, Mexico's main trading partner.

Many investors in Mexico have bet that the central bank will make two interest cuts in the second half of this year, but a recent inflation spurt gives the bank a bit less room to maneuver.

Ortiz, who has been the Bank of Mexico's governor for over a decade, gave few clues to the direction of monetary policy.

"Medium-term (inflation) expectations continue to be well-anchored. We're not completely comfortable with this level of inflation but it was expected," given high energy and food prices Ortiz said.

Annual inflation rose to 4.24 percent in early March, above the 4 percent limit the central bank considers acceptable.

Mexico's average inflation for the second quarter will very probably be between 4 to 4.5 percent, Ortiz said, adding that average inflation in the first quarter was between 3.75 and 4.25 percent, within the bank's forecast.

FOOD PRICES

Inflation across Latin America has jumped over the past few months as rapidly developing economies, such as India and China, boost global demand for food commodities. At the same time, large amounts of grains are increasingly being diverted to make biofuels.

Mexico's economy is seen growing less than 3 percent this year, compared with 3.3 percent in 2007. Mexico sells some 80 percent of its exports to the United States, making it very sensitive to the economy there.

Mexico's industrial output grew a better-than-expected 3.1 percent in January on a surge in car production, but economists don't believe Mexico can indefinitely avoid fallout from a weaker U.S. economy.

In a sign of waning demand from the United States, automaker Nissan Motor Co (7201.T) this month temporarily slowed production in Mexico of cars destined for export.

(Additional reporting by Luis Rojas and Pablo Garibian; Editing by Gary Hill)