MexECON Blog

IMF Sees Mexican GDP Growing 5.0 Percent

In its latest World Economic Outlook, the International Monetary Fund (IMF) this week said the Mexican economy will grow 5.0% in 2010, excluding the impact of inflation.  In its previous estimate, released in July, the IMF had projected Mexican gross domestic product (GDP) would rise just 4.5% this year.  Unfortunately, the IMF also lowered its forecast for Mexican growth in 2011.  In its new forecast, the organization expects Mexican GDP to grow just 3.9% next year, versus expected growth of 4.4% in its previous forecast.  According to the IMF, slowing growth in the United States could weigh on Mexico's current economic boom, which is heavily dependent on exports north of the border.  The IMF also said tighter bank regulation in the developed countries could crimp credit availability in Mexico, especially because foreign banks account for more than 80% of all bank assets in the country.  Finally, the organization noted that enormous amounts of capital are flowing into the Latin American region as a whole, raising the risk of excessive currency appreciation and destabilizing debt.

Comment:  The IMF's new forecast is broadly in line with estimates from other organizations.  For example, Finance Minister Cordero said in early summer that Mexican GDP would likely grow from 4.0% to "slightly" more than 5.0% in 2010, and central bank chief Carstens said in late summer that slowing demand from the United States could pull the 2011 growth rate down to 3.5%.  These forecasts all point to an economy that is growing at an above-average pace.  From 1989 to 2009, Mexican GDP grew at an average annual growth rate of just 2.6%, and in 2009, at the worst of the global recession, it fell 6.5%.  Despite the good growth at present, however, Mexico's current economic boom is uncomfortably reliant on exports.  While consumer spending is growing, it needs to accelerate further, and investment needs to start growing again.  Until that happens, Mexico's economy will be vulnerable to significant slowing.

Patrick Fearon, CFA
Vice President, Fund Management

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