The Mexican economy will grow by 2.4% this year and 2.2% in 2018, according to an upwardly revised forecast by the Organization for Economic Cooperation and Development (OECD).
The revisions were published as part of the annual OECD Economic Outlook.
Growth projected for this year is up 0.5% on the figure it published in June while the forecast for next year represents a 0.2% improvement on numbers published the same month.
“Growth is holding up above 2% despite the uncertain environment, fiscal consolidation and tighter monetary conditions,” the OECD said.
The figures are slightly higher than those forecast by the Bank of México for this year. It is anticipating growth between 1.8% and 2.3%. The central bank’s growth estimate of between 2% and 3% for next year is in line with the OECD outlook.
The OECD numbers are also more optimistic than forecasts by both the International Monetary Fund (IMF) and the World Bank, which predicted growth this year of 2.1% and 2.2% respectively.
The OECD outlook cited “the materialization of delayed investments [and] recent successful tenders in the energy sector” as factors contributing to the improved forecast, adding that “recent reductions in administrative burdens are expected to boost entrepreneurship and raise business investment.”
It also flagged an upturn in the construction sector as a result of the September 7 and September 19 earthquakes, which devastated parts of southern and central Mexico.
“Construction activity will pick up from its historically low levels, reflecting reconstruction after the September earthquakes,” the OECD said.
Another positive cited is that “corporate and household debt is low and homeowners hold large financial and non-financial assets.”
However, not all of the data and detail paint such a rosy picture.
“While recent reforms have increased job formalization and improved financial inclusion, poverty remains stagnant and large inequalities persist,” the OECD stated.
“Private and public investment, including by Pemex and other state-owned enterprises, has also been weak, owing to heightened uncertainty and fiscal consolidation” it continued, adding that “inflation has soared to well above the central bank’s target as a consequence of the accumulated depreciation of the peso and progressive liberalization of domestic fuel prices throughout 2017.”
OECD economists also consider uncertainty surrounding the future of the North American Free Trade Agreement (NAFTA) as a potential risk to the Mexican economy.
“Going forward, the uncertainty generated by the NAFTA renegotiations could persist and even intensify, further delaying investment and the realization of the gains brought by recent structural reforms,” the OECD warned.
“The economy is exposed to external shocks, particularly those related to changes to economic and trade policies in the United States,” it added.
However, if Mexico, the United States and Canada can successfully reach a renewed agreement, the OECD said that ” a strengthened commitment regarding economic integration would raise confidence and spur investment and productivity growth.”
The outlook summary for Mexico concluded by suggesting that “continuing to build the capacity of sub-national level entities involved in the new anti-corruption system, and boosting training, resources and technology for the judiciary, would improve the business climate and encourage investment.”
Source: El Economista (sp)