Published On: Tue, Aug 25th, 2015

The Mexican Economy is in the Doldrums

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Mexico’s economic growth has stalled, and even the peso’s value vis-à-vis the U.S. dollar is sliding, with 17 pesos equal to one dollar.

A recent The Washington Post article was entitled Mexico’s economy was supposed to soar. It’s starting to flop. (Joshua Partlow and Gabriela Martinez, The Washington Post, August 8th, 2015).

Some excerpts:

Mexico has been held up as one of the economic bright spots among emerging market economies, as Peña Nieto’s government has pushed through constitutional overhauls aimed at making major industries such as oil and telecommunications more competitive. But in recent months, Mexican newspapers have kept running banner headlines of economic gloom: The value of the peso has plummeted to record lows against the dollar, growth rates have shrunk to dwarfish size, and the only things that seem to be getting bigger are the poverty rate and the gap between rich and poor.

Economic problems become political problems for the incumbent administration, and Mexican President Enrique Peña Nieto’s administration had been hyping hoped-for economic growth which hasn’t materialized.

 

More from The Washington Post:

Peña Nieto’s strategists had predicted that the structural changes in the oil and telecom industries would produce growth rates of 5 to 6 percent, but expectations keep dropping.  While preparing this year’s budget, the government predicted growth rates of 3.7 percent, although so far this year growth has hobbled along at 1.6 percent.

In an economy the size of Mexico’s the gap between the hoped-for 3.7 and the actual 1.6 is rather large.  And so, says The Washington Post:

That has taken a political toll. A poll in the Reforma newspaper found Peña Nieto’s approval rating had fallen to 34 percent, down from 39 percent in March, reaching the lowest point since he took office in December 2012.  (It didn’t help morale that “El Chapo” Guzmán, the world’s most notorious drug lord, was able to tunnel out of a maximum security facility.)

A UNAM professor sums it up thusly: “We have an economy that practically has not grown in two-and-a-half years,” said Jonathan Heath, an economics professor at the National Autonomous University of Mexico in Mexico City.  “And that has bothered a lot of people, because the government promised that we were going to grow.”

Part of the reason for the economic growth failure has to do with petroleum, because the world oil price is low.

As for the future of PEMEX (Petróleos Mexicanos), the government oil company, the foreign investment allowed by the recent energy reforms isn’t moving along as successfully as hoped.

In any case, I thought it was not prudent for the government to hype the energy reform so much, because it could take years for it to kick in even if it works properly.

And according to Gerardo Esquivel, an economics professor at the College of Mexico (El Colegio de México), “To think that oil reform was the great solution to this country, that was wrong.  It’s a sector that employs less than 1 percent of Mexican workers.”

The Washington Post points out that it’s not just Mexico, the region of Latin America “averaged just 1.3 percent growth in gross domestic product last year, and that is projected to be even lower this year.”

 

Poverty is increasing in Mexico.  A Mexican government entity called CONEVAL (acronym for Consejo Nacional de Evaluación de la Política de Desarrollo Social) reports that the Mexican poverty rate has reached 46.2% of the country’s population, up from 45.5% in 2012.  (The poverty rate is calculated at $158 per month.)

The increase of poverty is troubling, and could bring with it more social and political problems.

Of course, economies rise and fall and depend upon various factors.  Sometimes economic growth reaches a plateau and stalls.

Americans often see Mexico as a poor country, while Mexicans constantly compare their own country with the United States.  But it’s helpful to stand back to see Mexico by world standards.

Mexico has one of the world’s biggest economies (#15 by nominal GDP; and 11th by purchasing power parity).  It has the second-biggest economy in Latin America, after Brazil; and the second-biggest among Spanish-speaking countries, after Spain.  On the United Nations’ HDI (Human Development Index), a rating attempting to measure standard of living, Mexico rates a score of 0.756 and a ranking of #71, which is not bad by international standards (that’s #71 out of 187).

Hopefully things will pick up soon.

 

By Allan Wall

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Allan Wall, an educator, resided in Mexico for many years.

His website is located at http://www.allanwall.info.

Mexico Travel Care




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