Mexico’s Economy Fairs Well Against US Slowdown

Mexico’s GDP growth is expected to end up between 2-3% for 2008 [1], a positive sign that Mexico’s economy can overcome the effects of a US slowdown and still be productive. Joydeep Mukherji, the team leader for the Latin American soverign ratings at Standard and Poor, praised economic progress in Mexico while urging further reform to deal with weaknesses in oil dependence and monopolies in a recent policy paper for the University of Miami.
Stable Financial Environment
One factor that is helping Mexico weather the storm to the north is their stable financial environment. Mukherji recognizes Mexico’s government for being fiscally responsible in their borrowing to slowly improve their infrastructure. In addition, credit availability is slowly growing and 80% of the banking sector is foreign owned. Inflation has been kept in check at 5% for 2008, despite rising global costs. As a result Mexico was given an investment grade sovereign credit rating and is one of the most financially stable environments in Latin and South America.
Economic Vulnerabilities
On the other hand, Mukherji points out vulnerabilities in the government’s reliance on oil revenues and the tolerance for monopolies. Oil revenues accounted for approximately one third of total government revenue in 2007, and production fell 5% in 2007. Mukherji suggests that falling oil prices may actually benefit Mexico’s economy since it could lead to increased demand for Mexico’s manufacturing goods which account for over 80% of their total exports. Mexico’s strength in manufacturing makes them less oil dependent than many of their Latin American and South American neighbors. Mukherji is also critical of the government’s tolerance of monopolies in industries such as energy and telecom which stifle investment and keep prices artificially high.
Mexico has appeared to turn the page from the days of rampant inflation and financial stability in the early 90’s. Mexico is a trillion dollar diversified economy with internationally owned banks and improved government oversight. As a result, investments in Mexico presents lower risk than less developed economies such as Nicaragua. Economic and financial strength is a great advantage of investing in real estate in Mexico.
Source:
1. More Mexico Reforms Necessary by Joydeep Mukherji