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UPDATE 2-Mexico budget sees 2013 slowdown, flags U.S., Europe risks
December 8, 2012 / 1:35 AM / in 5 years

UPDATE 2-Mexico budget sees 2013 slowdown, flags U.S., Europe risks

* Government aims for balanced 2013 budget
    * Economic growth seen slowing to 3.5 pct next year

    By Miguel Gutierrez
    MEXICO CITY, Dec 7 (Reuters) - Mexico's new government on
Friday forecast a slight economic slowdown in 2013, flagging
risks to growth stemming from Europe's debt crisis and the
battle in the U.S. Congress to avoid the so-called fiscal cliff.
    Presenting plans for a balanced budget for next year,
Finance Minister Luis Videgaray said Latin America's second
biggest economy would expand by about 3.5 percent next year
after growth of almost 4 percent in 2012.
    Videgaray said a slowdown in the United States, Mexico's
main trading partner, would hold back the economy. Nearly 80
percent of Mexican exports go to the United States.
    "It's a prudent estimate and also reflects the risks implied
by the situation in Europe and of course the fiscal situation in
the United States," Videgaray said.
    Worries over the outlook have been fanned by the failure of
U.S. political leaders to reach a deal yet to avoid the
combination of tax hikes and federal spending cuts set to start
taking effect in 2013.
    Still, new President Enrique Pena Nieto is hoping to
capitalize on a recent improvement in the Mexican economy, which
has outperformed its regional peer Brazil for the past two
years, helping to spur record amounts of investment in 2012.
    Videgaray outlined forecasts for oil production and the
price of crude very much in line with the previous budget.
    Mexico sees the average cost for a barrel of crude at $84.90
and oil output at nearly 2.6 million barrels a day. U.S. crude
was just below $86 a barrel on Friday. Oil revenues account for
nearly a third of the federal budget. The peso exchange rate was
seen at 12.90 per dollar.
    U.S. demand for Mexican goods has helped shield the country
from a wider global slowdown. But Pena Nieto's administration,
has work to do if wants to realize its ambition of raising
economic growth to about 6 percent a year.
    Pena Nieto took office on Saturday, returning to power his
centrist Institutional Revolutionary Party, or PRI, after 12
years in the opposition. Visiting dignitaries were hopeful the
new government would unlock more of the economy's potential.
    "I do sense considerable self-confidence in the country and
a feeling that they are at a turning point," former British
Finance Minister Norman Lamont told Reuters earlier this week
after attending Pena Nieto's inauguration in Mexico City.
    In his first speech as president, Pena Nieto pledged a
balanced budget. That is required by law - excluding debt at
state oil firm Pemex. Factoring in Pemex investment, a deficit
of 2 percent of gross domestic product is forecast for 2013.
    Pena Nieto has stressed the need for discipline in public
spending, but also wants to raise infrastructure outlays and
social security coverage, including pensions for the elderly.  
    To help pay for that, he wants to enact a fiscal reform to
raise revenue and curb dependence on income from oil. He also
plans to open up Pemex to more private investment.
    Manlio Beltrones, the PRI's leader in the lower house of
Congress, said on Friday the latest spending package was
essentially a stop-gap budget due to time constraints.
    The fiscal reform bill would be ready by July at the latest
and would aim to raise Mexico's tax take by an amount equal to 2
to 3 percentage points of gross domestic product to help pay for
Pena Nieto's social security plans, Beltrones said.
    A trim public deficit and solid growth have helped attract
record flows of foreign investment in Mexican stocks and bonds.
    Investors have taken note of Pena Nieto's stated intention
to shake up competition and liberalize the economy, a message
that contrasted with recent "interventionist" signals coming out
of Brazil, Lamont said.
    "All those things are going to move attention more to
Mexico. The impression I've had is that a lot of people believe
there will be more opportunity for foreign investment both in
the electricity sector and in the oil and gas sector," he said.
    Mexico had run slight deficits in previous years, as it
recovered from the 2008-09 recession. Lawmakers must approve the
budget before the end of the year, but the lack of any new taxes
bodes for a fairly smooth ride in Congress.

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