Mexican officials and economists are confident that the Mexican economy will start bouncing back this year following the impressive reform push of the Peña Nieto administration.
The Mexican peso has also gained strength after some depreciation last year amid capital market turmoil.
“In recent years, we have been a recipient of portfolio capital flows. But with the recent depreciation we suffered a little more in terms of the yield curve,” said Manuel Sanchez, deputy governor of the Bank of Mexico, which has refrained from intervening on the foreign exchange market in order to keep a flexible exchange rate.
“We continue to be cautious. Mexico has fared well in the market turmoil. Investors are differentiating Mexico from other countries that suffer from financial weakness.”
“Countries that keep their house in order are going to win and will get stronger growth even in a tougher environment,” he said.
Last year Mexico posted a mere 1.1% growth, but the Institute of International Finance expects growth to pick up and reach 3.5% this year and 4.5% in 2015.
“Most of the factors behind the slowdown seem transitory,” said Sanchez, who also expects to capitalize on the impending US recovery, despite the trajectory of the US interest rate. Unlike Brazil, Mexico would also be less affected by a fall in non-oil commodity prices.
“Mexico has among the strongest macroeconomic foundations in the region,” said Charles Dallara, executive vice chairman of Partners Group. “When you blend the macroeconomic stability with their structural reforms, and its links with the US economy, you have a powerful triple-whammy.”
Hasan Tuluy, the World Bank’s vice president for Latin America, expects that growth in Mexico will be between 3.5% and 4% this year. “I am not concerned about Mexico,” he said. “They have developed sophisticated and diverse economic structures, value chains and supply links across multiple sectors.”
Reforms range from tax and energy to telecoms, among others. Sanchez said this will “fuel a good sentiment for Mexico and will give future confidence for investors”. Those could eventually contribute 250bp to potential growth, according to Gabriel Casillas, managing director and chief economist of Banorte, a Mexican bank.
“This will create attractive investment opportunities for private equity and private infrastructure investors,” said Dallara. “The impact of those energy and telecom reforms will be powerful for Mexico and will create attractive investment opportunities... We have already invested in a pipeline, which is taking shale gas from Texas into Mexico. We intend to extend that investment.”