Mexico has launched a vigorous defence of its policies, against accusations that Latin America’s second largest economy has failed to deliver on its promise of reviving growth.
“Stable and stagnant, that is all you want to know about Mexico,” said Joydeep Mukherji, Mexico sovereign analyst at Standard & Poor’s rating agency.
The IMF this week forecast a small but steady acceleration in Mexico’s economic growth from 2.1% last year to 2.3% in 2015 and 2.8% next year, as economic activity is expected to pick up as the US recovers.
Yet those forecasts were lower than the IMF’s earlier predictions, even though the US — a vital driver of demand in Mexico — has had its growth forecasts raised.
Mexico’s performance has been rated utterly disappointing for a country which has boasted a long period of stability since the Tequila crisis of the mid-1990s, and which has just achieved a record low level of inflation — an annual rate of 2.5% in September.
“The economy is built on very solid pillars, but Mexico should grow faster,” said Mukherji. “And next year will be similar to this one.”
Drug-related violence, the weak competitiveness of some sectors of the economy — in spite of progress achieved by others — the lack of infrastructure in some remote areas, and a widespread letdown of morale in the private sector and middle class after corruption scandals, are usually cited as factors hampering Mexico’s performance.
“Certainly, with the poverty rate stagnant at about 50% despite more than 20 years of transfer programmes, the pressure to generate growth is palpable,” said John Welch, emerging market macro strategist at CIBC.
STABLE NOT STAGNANT
But the negative outlook was challenged by a senior Mexican official. “The Mexican economy is stable, but it is definitely not a stagnant economy,” said Manuel Sánchez González, deputy governor of the central bank of Mexico.
“We are expecting growth of about 2% this year. It is not much, but it is not stagnation,” he told Emerging Markets in an interview.
“We should not forget that structural reforms necessarily take time and will be benefiting the country,” said Sanchez, who criticised what he considered “excessive pessimism”.
“This is an understandable phenomenon. People feel the economy would grow faster. But one should avoid this tendency to become pessimistic, as the economy continues to grow. The man in the street does benefit from the decline of inflation,” he said.
Sánchez also pointed out that a rebound in domestic consumption — 2.6% in the last quarter, in annual terms — and a strong 5.6% rise in investment were encouraging signs of an upturn.
“We have always learned a lot from previous crises. Many Latin American countries have learned the hard way. [But] sometimes countries suffer because they were misaligned,” said Sánchez.
Indeed, not all Mexico-watchers are dismayed. “Economic growth in Mexico will take off slowly and steadily,” said Ilan Goldfajn, chief economist of Itaú Unibanco, the largest Brazilian private sector bank. Viewed from Brazil, the Mexican situation certainly looks comfortable.