Bank of Mexico Raises 2017 GDP Growth Forecast

The Bank of Mexico on Wednesday raised its growth expectations for 2017 after the economy in the first quarter proved resilient to concerns about the impact that strained U.S.-Mexico relations could have on investment and spending.

The central bank expects gross domestic product to expand between 1.5% and 2.5% this year, up from its previous estimate of 1.3% to 2.3%. The bank left its 2018 GDP growth forecast at 1.7% to 2.7%.

Private economists also have been raising estimates for this year after GDP performed better than expected in the first quarter, expanding at a 2.7% seasonally adjusted annualized rate. Growth is expected to slow somewhat in coming quarters as the rise in private consumption loses steam.

"Despite the relatively favorable performance of economic activity at the start of 2017, the most recent numbers point to a certain deceleration in coming quarters, which appears to be partly associated with the effects on investment and consumption of uncertainty over the future of the economic relations between Mexico and the U.S., although these have eased slightly," the central bank said in its quarterly inflation report.

A successful renegotiation of the North American Free Trade Agreement and possibly higher than anticipated consumption and remittances could lead to greater growth, while postponed investment decisions, the application of protectionist measures by the U.S., or new bouts of global market volatility could be negative for the outlook, according to the bank.

The Bank of Mexico remained confident that inflation, currently above target at 6.2%, will ease toward the end of this year and move back toward its 3% target in 2018, although it expects the annual rate will remain "considerably above" the 2%-4% target band this year.

Consumer price inflation began accelerating in late 2016 and picked up pace early this year as the depreciation of the Mexican peso filtered through to many goods prices, and January's sharp rise in gasoline and diesel prices had a further impact.

Write to Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

May 31, 2017 14:20 ET (18:20 GMT)