Mexico-GoodNews But OldNews

Politics

Mexico-GoodNews But OldNews

Mexico's economy showed sharp rise from 2008, but is this good news already old news as there are indications of looming global recession.


In its annual health check of Latin America’s second largest economy, the International Monetary Fund (IMF) said that Mexico had rebounded strongly from the global crisis, which attests to its strong fundamentals and skilful policy management.

According to the report, which was discussed by the IMF’s 24-member Executive Board on 27 July, manufacturing exports have led the recovery, with a rebound in domestic demand sustaining the momentum. Strong growth is expected to continue this year and into 2012, at about 4½ percent and 4 percent respectively, bringing output in line with potential.

SOUNDBITE: (English) Martin Kaufman, Mission Chief for Mexico, IMF:
“Mexico has experienced a V-shaped or a pronounced recovery after the global financial crisis thanks to its strong fundamentals and able policy management. And we’re expecting growth to continue this year and next, growing about 4.5 and 4 percent respectively, and converge to its potential output. And this is because initially exports led the recovery but now domestic demand is picking up and it’s taking and carrying a growth forward.”

In addition, three successive Flexible Credit Line arrangements - an insurance option created in 2009 for the IMF’s strongest performing members - have supported Mexico’s macroeconomic policies by providing a significant buffer against potential global tail risks, the IMF report said.

About 80 percent of Mexican exports go to the U.S. market, and Mexico’s industrial production closely tracks that of the United States. This reflects the high degree of integration of Mexican manufacturing into the US industrial production chain. Therefore, a more prolonged slowdown in the United States, particularly if it involved manufacturing, could be a drag on Mexico’s growth, said the IMF.

SOUNDBITE: (English) Martin Kaufman, Mission Chief for Mexico, IMF:
“Mexico is highly integrated with the U.S. particularly in manufacturing. So to the extent that the recovery is more slow that may be more of a drag on Mexico. But since U.S. manufacturing has been resilient, that would mitigate the potential impact on Mexico.”

According to the IMF, the direct impact of renewed financial problems in Europe would likely be contained for Mexico; but any consequent surge in global risk aversion could adversely affect even strong performers, such as Mexico, given its close integration with international capital markets.

SOUNDBITE: (Spanish) Martin Kaufman, Mission Chief for Mexico, IMF:
“The direct impact of unsettled market conditions on Mexico is expected to remain contained because financial institutions and the financial sector in Mexico are well ring-fenced. However, the surge in global risk aversion could affect even strong countries like Mexico. We think that Mexico stands on a very strong footing to deal with the turbulence because it has a flexible exchange rate, strong policies and regulatory frameworks, and the corporate sector and the financial sector are healthy.”

With growth in Mexico expected to continue on a strong footing, a key challenge for the authorities is how to gradually adjust policies, balancing domestic conditions against potential global downside risks.

SOUNDBITE: (Spanish) Martin Kaufman, Mission Chief for Mexico, IMF:
“Mexico’s long term challenges are to boost potential growth and employment generation, and address long term fiscal challenges. To boost growth and employment generation it will be important to jumpstart a comprehensive reform agenda to improve education, access to credit, and reform some market labour regulations.”

As fiscal consolidation is judiciously underway and past stimulus gradually withdrawn, the IMF said that the task of balancing domestic conditions and the potential impact of increased global downside risks would fall on monetary policy. With inflationary pressures at bay and inflation expectations firmly anchored, the central bank has room to decide on the best timing for the policy response to domestic and international developments.

The IMF noted that the authorities should continue gradually rebuilding fiscal buffers, which allowed Mexico to pursue a countercyclical policy response during the recent global crisis, to provide an additional insurance against potential global downside risks. Consideration could also be given to enhancing Mexico’s strong fiscal framework by focusing on a structural balance measure. Over the longer term, age-related (health and pension) spending pressures and declining oil revenues as a share of GDP will pose fiscal challenges requiring a combination of non-oil revenue mobilization efforts, including at the sub national level, and expenditure rationalization. Reforms should be undertaken in the near future to prepare for these medium-term challenges.

Mexico’s prudential framework is ahead of new international financial standards, with banks well positioned to implement them, the IMF report said. The country has also been a leader in the setting up of a Financial Stability Council to monitor systemic risks and help coordinate efforts to address potential financial vulnerabilities.


Details

Language: Spanish

Year of Production: 2011

Length: 2:30 mins

Country: Mexico

License

Creative Commons License

Mexico-GoodNews But OldNews by DiplomaticallyIncorrect.org is licensed under a Creative Commons Attribution Share Alike 3.0 License.


Directors:

  • Muhamed Sacirbey (UNTV-IMF)

Producers:

  • Susan Sacirbey (UNTV-IMF)