What Next for the Mexican Economy?

Euromonitor was pleased to contribute to the 13th Mexico Business Summit in Guadalajara. Speakers including president Enrique Peña Nieto; Paul Krugman, Nobel Prize winner and Professor of Economics at the City University of New York; Dora Iakova, the IMF Mission Chief for Mexico; Eswar Prasad, Tolani Senior Professor of Trade Policy and Professor of Economics at Cornell University; and Jeffrey Schott, Senior Fellow at the Peterson Institute of Economic Affairs; analysed the performance of the Mexican economy and its future direction.

I participated in the session “It is all about the middle class” which expounded on the idea of the middle class as a driver of economic growth and social and political cohesion. Exploring what it means to be middle class in Mexico and the factors driving the growth of this key consumer segment.

Some themes emerging from the conference include:

  • Mexico is in a unique position among emerging markets because of its shared border with the USA and membership of NAFTA. In some senses it has more in common with Canada than with other emerging markets. 80% of Mexican exports were destined for the USA in 2014.
  • Its performance is strong in the context of the region as a whole which is struggling with projected growth of just 0.1% in 2015.
  • The Trans-Pacific Partnership (TPP) will enhance the country’s position as a trade centre for Latin America. It will encourage Asian investment in Mexico. Total FDI inflows accounted for just 1.8% of GDP in 2014.
  • Mexico has a difficult course to navigate in the coming year, interest rate rises in the USA, increased emerging market volatility and the China slowdown will create stresses in the Mexican economy.
  • The economy may be squeezed by fiscal consolidation and the impact of the low oil price. The budget deficit is expected to widen to 3.7% in 2015.
  • Mexico needs a new growth narrative. Industrial production is growing more slowly than the overall economy. Some regions within Mexico are seeing strong growth, others are seeing their economies stagnate or decline.
  • Improving the educational sector and increasing educational attainment is a key challenge and one that if met would boost economic growth. 43% of the Mexican population aged 15+ had a secondary or higher education in 2014, compared to 63% in China.
  • Low female participation in the labour force means that Mexico is not capitalising on the full potential of its human capital. In 2014, only 51% of the female population of working age was in the labour force.
  • Strengthening the rule of law in Mexico is key to the development of the economy. Mexico ranked 124th out of 202 countries in the World Bank’s Rule of Law Index in 2014.

Real GDP Growth in Mexico and Latin America: 2005-2020

Real GDP Growth in Mexico and Latin America

Source: Euromonitor International from national statistics/OECD/IMF

Note: Data from 2015 are forecast

On the whole the tone was one of cautious optimism, with an awareness of the strengths and weaknesses of the economy, and an understanding of the headwinds likely to be faced by Mexico in the coming years.