In an interview with Reuters, Central Bank Governor Agustin Carstens said despite recent bumps on the road for U.S. economic expansion, the sector that matters most for Mexico — factory production — is holding up rather well.
“Even though I acknowledge that there have been some mixed figures about the U.S. economy, we still are optimistic about the evolution of the Mexican economy,” Carstens said on the sidelines of a meeting of the Group of 20 nations and the International Monetary Fund.
Mexico ships more than 80 percent of its exports to the United States.
The U.S. economy expanded 3.1 percent in the fourth quarter, but analysts think growth could fall to just half that in the first quarter of 2011.
Carstens said Mexican central bank officials were closely monitoring a steady spike in commodity prices that has left U.S. crude oil costs hovering just below $110 a barrel.
As an oil exporter, Mexico has not been as hard hit as some other countries. Thus far, Carstens sees no particular signs of concern as far as inflation pressures are concerned.
“The inflation we reported just a few days ago for March was at an all-time low,” Carstens said. “So that gives us some sense of confidence.”
“We are following a very cautious approach. If we see that commodity prices are … affecting in a more fundamental way the dynamics of price setting in Mexico and also feeding into inflationary expectations, at that point we might decide to adjust our monetary policy stance,” he added.
The Group of 20 agreed over the weekend to a set of guidelines that will help flag financial imbalances that could potentially lead to crises. Asked if governments of troubled economies would not do better to focus more concretely on job creation, Carstens denied there was a conflict between the two.
“The recent jump in unemployment in all the advanced economies was precisely due to a lack of financial stability. So if you stabilize, then you create the environment for more job creation,” Carstens said.
Mexico suffered disproportionately during the financial crisis, experiencing one of the most severe contractions in the world. But things have been looking up recently. After shrinking 6.1 percent in 2009, gross domestic product rebounded 5.5 percent last year.
Still, prospects of a softer U.S. outlook have given rise to some trepidation for Mexico, even though the IMF expects the country to expand about 4.6 percent this year and 4 percent in 2012.
At the same time, the March inflation reading was in line with policymakers’ long-term target of 3 percent annual price increases, and analysts in a Reuters poll released on Friday expect prices will remain under control in the near-term.
Benign inflation is one reason why Mexican policymakers are not expected to raise interest rates from the current 4.5 percent until the first quarter of 2012.
(Additional reporting by Jason Lange in Mexico; Editing by Leslie Adler)
Original: Carstens says Mexico resilient to U.S. softness | Reuters.