MexECON Blog

Government Sees GDP Growing 3.7 Percent in 2015

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 decades.

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 expects.

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

Investment Per GDP 2014 Q1

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