Mexican finance minister Jose Antonio Meade has brushed aside concerns that global economic tensions will hit the second-largest Latin American economy harder because of its links with the US.
“Mexico is doing well. Its economy grew at 5% last year, it has been growing in the first half of this year, and it will continue to grow next year. Growth has been very balanced,” he told Emerging Markets in an interview.
Meade forecast that GDP growth would reach almost 4% this year, and 3.5% next year, a modest level by emerging markets standards.
Exports account for around 30% of Mexico’s GDP, leaving the country vulnerable to downturns in global demand. The country’s economy suffered a severe blow following the 2008 crisis, with GDP plunging by more than 6% in 2009.
But Meade, who succeeded Ernesto Cordero this month at the finance ministry, insisted that the country was better-equipped to withstand a drop-off in demand this time around and has yet to downgrade its growth forecast.
“Mexico had two rounds of fiscal consolidation. We have aggressively pursued solvency issues related to pension schemes. We have now recovered beyond the level of GDP we had before the crisis, we have recovered a lot of the jobs that we had lost,” Meade said.
Furthermore, while Mexico’s exports to the US still account for around 80% of overall exports, Meade pointed out that this has fallen in recent years. “This is the lowest level we ever had,” he said.
Despite Meade’s optimistic outlook, other Mexican policymakers appear to be preparing for a slowdown.
Mexico’s central bank has indicated that it is ready to loosen its monetary policy if the external economic situation deteriorates further.
Mexico’s central bank governor Agustin Carstens told Emerging Markets this week: “We are minding our fundamentals and strengthening our economy. This is making a difference in terms of how variables behave”.
Barclays Capital analysts expect a cut of 50 basis points in Mexico’s base rates by the end of the year to 4%. But there has been no firm indication that Mexico will follow Brazil’s lead in slashing interest rates at its next monetary policy meeting next month.
Tensions on the foreign exchange front may also delay central bank moves. Luis Arcentales, an economist at Morgan Stanley, said: “Any boost to the economy from easier monetary policy is likely to pale in comparison to the benefits to long-term growth derived from progress in Mexico’s unfinished reform agenda.”
Meade also defended the Mexican government’s iron-fist policy against drug cartels, which has led to an escalation of violence throughout the country, and which remains a major concern to investors.