(Corrects time element to Thursday in seventh paragraph)
By Daniel Bases
NEW YORK, March 28 Mexico's economic growth in
the first quarter of the year is being affected by slower growth
in the United States and by poor weather, Mexico Central Bank
Governor Agustin Carstens said on Friday.
"We have had slower-than-expected growth in the first
quarter but I think to a large extent it is also correlated with
slower growth in the U.S. and a lot of it is because of the
weather," he said, speaking to gathering of The Economic Club of
He also said emerging market nations need to be ready to
deal with the consequences of higher interest rates in the
United States and other developed nations.
Carstens reiterated to Reuters that the economic growth
forecast for 2014 remains between 3 and 4 percent for Latin
America's No. 2 economy.
Asked if there was a chance it may come down given the
softness in the first quarter economic activity, he deflected
the question, saying: "We have to see what the incoming figures
tell us. There are some transitory factors effecting growth,
such as the weather in the U.S."
"We will revise our forecast in the next inflation report
that we will issue in May. So right now we don't have any other
figures," he told Reuters after his speech.
On Thursday, Mexico reported factory exports rebounded in
February by the most in over four years as auto shipments
Mexico's central bank has held interest rates at a record
low of 3.50 percent since early in the fourth quarter of last
The government is forecasting economic growth of 3.9 percent
this year versus the 1.1 percent growth in 2013 which marked a
four-year low due to a downturn in factory output and
Inflation ran above 4 percent earlier this year while the
peso has eased off its 1-1/2 year low against the U.S. dollar in
January when investors were dumping emerging market assets.
The reduction in U.S. monetary stimulus, known as tapering,
has impacted emerging markets negatively.
Much of the extra cash that was pumped into the world's
largest economy by the U.S. Federal Reserve sought higher
yielding assets in emerging markets versus near zero interest
rates in the United States.
Now that the stimulus is being pulled back and interest
rates are rising, Carstens believes economic reforms in Mexico
have helped insulate the country from the worst of the
The close ties to the U.S. economy have also helped, but
that doesn't mean Banco de Mexico won't remain vigilant, he
"It will be a turbulent ride. We will have to be prepared
and if you do the job I think you will fair well," he said.
"Flexibility in the exchange rate, flexibility in interest
rates is important. You need to anchor those variables with
strong fundamentals in the fiscal side, on the financial sector
He also said having an FCL (Flexible Credit Line), with the
International Monetary Fund was also an important factor to
prepare for any potential disruptions.
"You have to bring in all the help you can," he said.
"I think the main value of an instrument like the FCL is not
so much the money it offers you, but the fact that it is a very,
ery valuable commitment acknowledgement. If you don' keep to the
fundamentals, then the Fund will say you don't have access to
that money. That is a scenario you do not want to face."
(Reporting by Daniel Bases; Editing by Sophie Hares and Stephen