March 31, 2017 / 3:03 PM / 4 months ago

UPDATE 2-Mexico lowers economic growth view on U.S. headwinds

2 Min Read

(Adds Finance Ministry's comments, background details)

MEXICO CITY, March 31 (Reuters) - Mexico's finance ministry on Friday cut its 2017 growth outlook for Latin America's no. 2 economy, flagging uncertainty over U.S. policy, and said it saw inflation ending the year nearly a full percentage point above the central bank's target range.

It expects the economy to grow between 1.3 and 2.3 percent in 2017 and then rebound to expand 2.0-3.0 percent in 2018. The ministry had previously projected gross domestic product (GDP) growth of 2.0-3.0 percent in 2017 and 2.5-3.5 percent for 2018.

"Although weakness in global growth has started to dissipate, uncertainty about the new U.S. government's policy direction poses downside risks for the Mexican economy," the ministry said.

The finance ministry also said it saw annual inflation ending 2017 at 4.9 percent, above the central bank's target range, before subsiding to 3.0 percent by year-end 2018.

Mexico's central bank raised its benchmark interest rate for the fifth time in a row on Thursday, taking borrowing costs to an eight-year high to anchor inflation expectations. But policymakers slowed the pace of hikes on the back of a rally in the peso.

The finance ministry projected the peso would end 2017 at 19 per dollar and 19.1 per dollar in 2018.

It sees a fiscal deficit of 2.4 of projected gross domestic product this year and a deficit of 2.0 percent for 2018.

After running primary budget deficits since 2009, the government said it would post a primary surplus of 0.5 percent of GDP next year.

Total public sector borrowing requirements will amount to 2.5 percent of GDP in 2018, the finance ministry estimated, 0.4 percentage points lower than its 2017 level.

Mexico's central bank said on Wednesday it had transferred 321.7 billion pesos ($17 billion) of its 2016 surplus to the federal government, which will help the country pay down debt this year. (Reporting by Anthony Esposito and Veronica Gomez; Editing by Alistair Bell)

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