Mexico: A Somewhat Weaker Economic Outlook Ahead…

Business Monitor International (BMI) has downgraded its forecast for Mexican real GDP growth from 3.0% to 2.3% in 2013, and from 4.0% to 3.5% in 2014.

Why The Downgrade?

The manufacturing sector has performed more weakly than expected, with industrial production contracting in H1 2012. This is because US demand for Mexican manufactured goods slowed from 2012 levels, when there was a significant amount of pent-up American demand.

Meanwhile, significant delays in public spending led to a contraction in several sectors, such as construction. Delays occurred due to a transition in government in December 2012, and are typical in Mexico every time there is a change of administration, although the impact on the economy was larger than we anticipated.

Why Do We Still Expect Stronger Growth In 2014?

The manufacturing sector will recover as the US consumer strengthens.

Public spending delays will be addressed, and President Enrique Peña Nieto’s recent announcement that he will inject US$315bn into infrastructure between 2013 and 2018 will result in stronger investment.

We also note that proposed energy reforms will be discussed by the legislature over the coming weeks and months, and if these result in more favourable conditions for greater participation of foreign companies in the sector, it could attract significant additional external investment. We will monitor the trajectory of reform closely to assess if this will succeed in garnering ‘game-changing’ investment. For the time being, our GDP forecasts reflect only a modest uptick in investment.

Our full article on Mexico’s economic outlook, and analysis of other Latin American countries, are available to subscribers at Business Monitor Online.