« Insights > Maquiladora

Mexico hails shift towards domestic economic growth

Admin | 29.03.2012

The drivers of Mexican growth are more balanced than ever before, according to its finance minister, Jose Antonio Meade

Mexico has succeeded in diversifying its economy away from exports towards domestic demand, the country’s finance minister said in an interview with Emerging Markets.

Jose Antonio Meade said the country’s economy had “very balanced drivers. If you look at 2009, the principal driver was exports,” he said. “Today, exports are still dynamic, but factors of internal growth are equally relevant.”

This upbeat view from the government that currently holds the chair of the Group of 20 nations was confirmed by independent experts who said an important change was underway in Mexico.

The country looks set to exceed the official projection of 3.3% GDP growth in 2012. The Finance Ministry now says the floor will be 3.5% and some analysts forecast growth closer to 4%, the rate achieved last year.

“Over the last few weeks Mexico has reported some very favourable numbers relative to its 2011 economic performance,” HR Ratings, a local ratings firm, reported. “We expect it to continue to be strong and certainly above Mexico’s long-term historical average.”

The country’s trade balance has improved substantially from the 2008, the start of the financial crisis, when the deficit reached $17.2 billion. The trade deficit last year was $1.2 billion.

Public investment is also playing a part, reaching 5% of GDP, compared to 3.3% annually during the previous decade.

“Public investment concentrated on infrastructure has provided support for growth today and will allow for growth in future through increased competitiveness by strengthening logistical capacity with better ports, road and rails,” Meade said.

Improved infrastructure is one of the primary elements attributed to Mexico’s ability to narrow the competitive gap with China. Competition from China, just a few years ago, was considered by analysts as one of the primary threats to Mexico’s manufacturing sector.

Meade pointed to Mexico’s geographic location adding that labour costs were helping the country stay competitive with China. “Our labour costs are highly competitive and we have an advantage in the level of training of the work force,” he said.

Mexico has generated 1.2 million jobs in the past two years, outpacing the average of 400,000 added annually during the first decade of this century.

However some economists were sceptical about the country’s ability to maintain long-term growth. Oscar Ugarteche of the National Autonomous University of Mexico said job creation had not been in productive sectors and salaries remained too low to maintain domestic consumption.

He said Mexico has failed to focus greater attention on the rest of Latin America. “Mexico has not shown interest in deepening its links to the rest of the region, where there is potential for real growth,” he said.

There are, nevertheless, efforts underway that respond to this concern. Mexico recently concluded a free-trade agreement with Peru and is one of four countries, including Chile, Colombia and Peru, finalized the new Alliance of the Pacific in early March. The alliance has been presented as area of integration for the free circulation of goods, services, capital and people.

HR Ratings said the government must not take its eye off inflation, which was low but had crept up. Consumer prices rose 3.9% in the 12 months to February, down from 4.1% in January.

Source: emergingmarkets.org