Mexico’s economic outlook in five charts
November 8, 2018
Mexico’s economy has seen moderate growth this year, driven mainly by domestic demand, with growth projected at 2.1% for 2018, the IMF said in its latest annual economic assessment.
Economic activity in Mexico remained resilient despite political and economic uncertainty in the first half of 2018, caused by election preparations and trade negotiations between the United States, Mexico and Canada.
That said, the country continues to face challenges such as improving living standards by reducing poverty and inequality, as well as fighting crime and corruption.
To address these challenges and spur growth in a way that will benefit more of the population, reforms will need to focus on increasing public investment and social spending, as well as reinvigorating the structural reforms with a focus on strengthening the rule of law, fighting corruption and reducing labor market informality, the IMF report says.
Here are five paintings that tell the story.
- The Mexican economy has continued to grow despite uncertainties related to the recent elections and the country’s future trade relationship with the United States. In the near term, growth is expected to pick up moderately to 2.1% this year and 2.3% in 2019. Growth will benefit from strong economic activity in the United States in both years. But continued tight monetary policy and uncertainty related to both the new administration’s policies and trade relations with the United States will continue, dampening growth.
- While Mexico’s public debt is expected to stabilize, the current level, at 54% of GDP, limits the space for social and infrastructure spending. Maintaining the overall fiscal deficit at 2.5% of GDP over the medium term would stabilize debt around its current level, assuming medium-term growth declines to around 3% and the path of interest rates remains stable. A slightly more ambitious target would improve fiscal space to address large infrastructure needs, high levels of poverty and inequality, and the fiscal costs of an aging population.
- Poverty, which affects more than 43% of the population, and inequality with a Gini index of nearly 50, remain high in Mexico. One of the reasons poverty rates remain high is Mexico’s low per capita growth in recent decades. Another is that social policies have not been targeted as well as they could have been. While conditional cash transfer programs have been highly effective in reducing inequality, other social programs have disproportionately benefited individuals at the top rather than the bottom of the income distribution. In addition, the redistributive role of fiscal policy (targeted public spending to help reduce income inequality) is generally weaker in Mexico than in other members of the Organization for Economic Co-operation and Development (OECD) and could be expanded.
- Improving security and strengthening the rule of law are key to reducing crime and promoting economic activity. Mexico had its deadliest year on record in 2017, and cases of robberies have also increased. High levels of crime come with direct and indirect economic costs due not only to damage, but also to the need for costly security measures. More importantly, companies can limit their activities and cancel their investment plans in response to a precarious security situation. Small businesses suffer these consequences disproportionately in Mexico, although Pemex, Mexico’s state oil company, is also facing a continued increase in pipeline taps with considerable costs to the company’s operations.
- Mexico should continue to support the entry of women into the labor market. Despite significant improvements in women’s participation in the labor market and equal pay, women remain severely underrepresented in the Mexican economy. Reducing the participation gaps of mothers remains a priority. Childcare and maternity and paternity benefits remain well below OECD peers and could help close these gaps.