The Mexican government said on Friday that the country's gross
domestic product (GDP) would expand 3.7% in 2015. The
projected growth rate, submitted with the proposed budget for 2015,
would mark a significant acceleration from the government's
forecast of 2.7% growth in 2014, and it would be well above
Mexico's average annual growth rate of 2.5% over the last two
According to the government, the acceleration in 2015 will stem
mostly from increased investment and exports. President
Enrique Peña Nieto has championed a series of economic reforms
aimed at boosting investment and efficiency in private-sector
industries such as energy and telecommunications, but the
administration said the increase in investment in 2015 will also
include a boost in public investment. Government oil revenue
is expected to fall 7.1%, owing to declining output and lower
prices, but the government expects last year's fiscal reform to
boost tax revenues to a record high of 10.7% of GDP, supporting the
rise in investment spending.
Comment: It is certainly
reasonable to foresee some acceleration in Mexican economic growth
in 2015. Exports have recently been rising faster, while the
construction sector is in a nascent rebound after a long period of
extreme weakness. If tax revenues really do rise as expected,
government spending could also increase again. As I have
warned repeatedly, however, the labor market remains relatively
soft, and consumers are discouraged by the current level of
inflation. If that continues to weigh on consumer spending,
the acceleration in 2015 may not be as great as the government
Looking forward, it will be important to see whether the
government's economic reforms really do boost investment.
Relatively weak investment is often cited as a key reason for
Mexico's lackluster economic growth over the long term.
Indeed, the government's own data show that investment as a share
of GDP has been trending downward for the last several years.
According to the International Monetary Fund (IMF), Mexican
investment as a share of GDP has averaged only about 23.4% over the
last several decades, compared with 25.4% in Vietnam, 27.5% in
India, 30.3% in Thailand, and 40.7% in China.
Patrick Fearon, CFA
Vice President, Fund Management