Thu May 15, 2014 6:28pm EDT
(Reuters) – Mexico’s economy is showing signs of stronger growth after a weak start to the year while Brazil needs to work on making its recent commitment to tighter fiscal policy more credible, a top IMF official said on Thursday.
Alejandro Werner, the IMF’s director for the Western Hemisphere Department, said recent increases in the pace of factory exports, improving construction growth and more government spending should help the Mexican economy pick up speed.
“All of that points to the first stages of an acceleration of growth,” Werner told Reuters in an interview in Mexico City, adding that weakness in employment and consumer confidence should improve after gains in the manufacturing sector.
“Hopefully as the year progresses, consumption will give an important push to growth and eventually we will see some signs that investment is picking up.”
Werner said the IMF was still sticking to its projection for 3 percent growth this year after the Mexican economy grew 1.1 percent last year, its slowest rate in four years.
Mexico has stood out from other emerging markets after it passed a series of major reforms last year, including opening its state-run energy sector to private investment, and overhauling telecoms laws to promote more competition.
Werner said stronger growth in the United States, where Mexico sends nearly 80 percent of its exports, should help lift the Mexican economy in the next two or three years.
During the last decade, Mexico’s economy lagged growth in other emerging markets, which saw a boost from China’s growth and demand for raw materials. Mexico, which produces more factory exports, faced competition from Chinese goods.
Slowing growth in China has hit demand for raw materials and weighed on growth in Brazil, Latin America’s biggest economy. A rapid erosion of the country’s finances prompted Standard & Poor’s to cut Brazil’s credit rating in March.
But in mid-April, the Brazilian government set a higher fiscal savings goal for 2015. <Id:nL2N0N70SV>
“We think it important to continue to be as clear as possible to what is the medium term fiscal framework so that economic agents have full credibility in a sustainable fiscal policy that puts debt to gross domestic product on a declining path,” Werner said.
Werner also said there are signs that Brazilian core inflation pressures are receding after the central bank hiked its benchmark rate by 375 basis points since April 2013 to fight a jump in inflation that rose over 6 percent.
“Going forward it is very important for Brazil to re-establish full credibility on its medium-term inflation target,” he said. Brazil’s central bank targets inflation at 4.5 percent, with a tolerance margin of two percentage points.