(Adds details on report, background on economy, central bank quote)
By Sheky Espejo and Anthony Esposito
MEXICO CITY, May 31 (Reuters) - Mexico’s central bank on Wednesday raised its 2017 growth forecast, a sign Latin America’s No. 2 economy has proved resilient to policy proposals by U.S. President Donald Trump that were expected to harm exports and investment.
Mexico’s first-quarter gross domestic product was stronger than forecast and 2017 growth should come in between 1.5 - 2.5 percent, up from a previous estimate of 1.3 - 2.3 percent, the bank said in its quarterly inflation report. The upgrade came after the finance ministry raised its growth outlook last week.
Banco de Mexico kept its 2018 growth expectations unchanged, however, at between 1.7 - 2.7 percent. Inflation will be above the 4 percent target range for most of this year, but should trend down toward the end of 2017, and converge toward the 3 percent target by the end of 2018, the bank said.
The growth estimates were seen as good news for Mexican President Enrique Pena Nieto whose party faces a closely-fought state election this weekend that serves as a curtain-raiser for the presidential vote in 2018.
Last week, Mexico’s finance ministry revised its official 2017 growth estimate upward, shortly after government data showed the economy was performing better than many expected in the wake of Trump’s election victory.
Trump’s election last year raised the specter of recession in Mexico, as he threatened to rip up the North American Free Trade Agreement (NAFTA). His victory sent the peso into a tailspin, and prompted some economists to cut growth forecasts.
An overall softening of rhetoric from Trump’s administration on NAFTA and about U.S. companies that invest in Mexico has calmed nerves for now. Despite positive economic data, Pena Nieto remains deeply unpopular due to his failure to jumpstart growth, tackle corruption and end years of violence.
The inflation report also came with an unusual warning for the political class at a time when Mexico faces rising fuel theft, a growing murder rate and widespread impunity for everyone from drug traffickers to white-collar criminals.
“In order to prevent insecurity and violence from establishing themselves as a drag on economic growth, it’s indispensable to strengthen the rule of law and guarantee judicial certainty for all economic actors,” the report said. (Reporting by Sheky Espejo and Anthony Esposito; Editing by Gabriel Stargardter and Andrew Hay)