Mexico Economy Structurally Sound, in Spite of Modest Growth

Mexico’s economy is on solid footing, with a mid-term outlook calling for modest growth outpacing modest inflation, former Mexico Finance Minister Pedro Aspe told an audience at The Wilson Center on Wednesday.

Aspe cited renewed competitiveness in the Mexican manufacturing sector, especially in light industrial goods, and a projected decrease in the country’s labor surplus as reasons behind the optimism. He was speaking as part of the Wilson Center Mexico Institute’s Dialogos con México/Dialogues with Mexico speakers series.

“This makes me very optimistic about the future,” said Aspe, who served from 1988-1994 and now manages the U.S.-based Evercore Partners investment group.

Aspe indicated that Mexico’s GDP would rise modestly in the near term, at about 4 percent on an average annual basis, with inflation at about 3 percent annually. However, Mexico could be forced to contend in the mid-term with uncertainty stemming from the still looming European crisis, potentially dampening growth forecasts, he said. Aspe added that for Mexico to see “Chile-like” growth of 7 percent per year, it needs to identify those industries with high growth potential and help to mature these markets; structural reforms could also help boost economic output, he added.

The former finance minister cited structural changes in the Mexican population and in the world economy for the positive outlook. Mexico is approaching an important demographic moment, he said, with the country’s dependents-to-provider ratio approaching a historic low. In fact, projections for 2013-2014 call for Mexican households to average just 1.7 children, a sharp decrease from prior years. This change augurs benefits for the Mexican economy since it means a reduction of the labor surplus, consequently higher purchasing power for workers, and healthier public finances with a greater number of workers to pensioners.

Global economic changes also are making Mexico more competitive, he said. Increased labor costs in China, comparatively lower shipping costs for some Mexico-made goods, and Mexico’s geographic advantage to the U.S. market are encouraging, Aspe said. World manufacturers are taking a second look at Mexico as a platform for export to the United States, and are also eager to sell to the country’s growing domestic market.

“Mexico finally looks competitive (since China entered the WTO in 2001), and this is extremely good news,” Aspe said.

He added that Mexico’s strong macroeconomic profile has helped it weather the recent world economic crises, and he cited the country’s low deficit spending compared with many European countries. On energy, the former finance minister cited three pieces of good news—amid recent concerns that oil output is falling sharply. First, production has stabilized and is no longer falling as it had been. Second, the increase in output has come from the exploitation of new deposits. And, thirdly, new financing schemes with the private sector, called incentivized contracts, are proving successful, helping boost production. Mexico is a major world oil producer and a major supplier to the United States.

Robert A. Donnelly