The Mexican economy will accelerate in 2014 and 2015, driven by a recovery in public investment, as well as by an acceleration in export and private consumption growth. We expect the construction sector to return to growth in 2014 after contracting last year, and manufacturing to be a top performing sector in the coming years, bolstered by stronger US demand.
We expect the Banco de México's (Banxico) to hold its policy rate at 3.00% through H115, following a surprise 50 basis points (bps) rate cut on June 6. We believe that stronger economic activity growth and above-target inflation will drive rate hikes in H215, and we forecast Banxico's policy rate to end 2015 at 3.50%.
The average unemployment rate in all of Latin America's largest economies except Mexico and Colombia will either remain the same or rise in 2014 as weaker economic activity results in a moderate deterioration in the labour market.
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