The National Institute for Statistics and Geography (INEGI) reports 11 months of deceleration of the Mexican economy, with numbers from May showing a 0.03 percent decline from April’s figures.
Declines were seen in industrial activity, total imports, and the index of net retail sales. Only the number of employed in the Mexican Social Security Instititute (IMSS) and the rate of urban population decline accelerated slightly for the month.
Mexico’s Central Bank (Banxico) governing board has also reported its concern with the economy’s decline during the second quarter. Private economists and the Economic Commission for Latin America and the Caribbean (CEPAL) have reduced their growth estimate for 2013 to 2.65 percent.The International Monetary Fund (IMF) lowered its estimate for growth to 2.9 percent a month ago. But the Secretary of Finance (SHCP), Mexico’s tax and revenue collector, does not concur, keeping its GDP growth estimate at 3.1 percent for 2013 (dropped down from 3.5 percent in the first quarter).
Other indicators give both points of view some credence. The price index for the Bolsa Mexicana (stock exchange) is showing signs of recession, but the peso seems to be holding its own. But the Standard and Poor’s 500 index is showing expansion as is employment in manufacturing and the Tasa de Interés Interbancaria de Equilibrio (TIIE — the inter-bank interest rate). Non-petroleum exports are recuperating as well.
In order for GDP growth to rise from its current potential of about three percent to a healthier four percent, the productivity trend must be reversed through structural reforms, according to the OECD, a Paris-based think-tank for industrialized countries. Mexico’s three main political parties have created a pact to promote more than 100 such changes. OECD also argues for a stronger legal system that enforces competition laws and improvements to the criminal justice process to encourage firms to invest. Foreign direct investment in 2012 plunged to 12.7 billion dollars, from an average of around 23 billion during the past decade, according to CEPAL. It remains to be seen how much Mexico’s politicos can push through Congress this year. In spite of their efforts, 2013 may be a disappointment for investors bullish on Mexico.