(Bloomberg) -- Mexico’s central bank increased its growth forecast for this year and next, confirming Latin America’s second-largest economy continues to outperform expectations on strong domestic consumption and rising exports to the US.

Banxico, as the central bank is known, raised its estimate for gross domestic product expansion next year to 3% from the prior estimate of 2.1%, according to its quarterly report released Wednesday. For 2023, the bank now expects 3.3% growth, compared to the previous 3% projection, marking the third straight report in which it has boosted growth expectations for the year. It also published its first expansion estimate for 2025, at 1.5%.

The Mexican economy is benefiting from “a resilient external demand and domestic spending dynamism,” Banxico Governor Victoria Rodriguez Ceja told reporters during the report’s presentation, adding that growth risks for the country are “balanced” while inflation risks remain biased to the upside. 

The bank left its inflation forecasts unchanged from the estimates published with its Nov. 9 interest rate decision, when the board kept borrowing costs unchanged at 11.25%.

Mexico is growing faster than private economists expected at the beginning of 2023, spurred by higher salaries that underpin consumption as well as government spending and record remittances from workers abroad. Despite the threat of a recession in the US, its top trading partner, exports have continued to rise, gaining 5.6% in October compared to the prior year.

Gross domestic product expanded 1.1% in the July-September period from the previous quarter, beating all estimates in a Bloomberg survey of economists, the country’s statistics institute said last week. From the same period a year prior, GDP grew 3.3%, above the 3.2% projection. 

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“Economic activity and a positive production gap suggest upward inflation risks,” Credicorp Capital economists including Daniel Velandia and Samuel Carrasco wrote in a note published before the inflation report. “Banxico should proceed cautiously, offering clarity in Dec-23 about potential rate cuts in early 1Q24.”

--With assistance from Alex Vasquez and Dale Quinn.

(Updates to add quote from central bank chief in third paragraph)

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