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Economists dial down projections for Mexico's growth

October 01, 2013|By Tracy Wilkinson
  • Mexican President Enrique Pena Nieto speaks on fiscal reform at the presidential residence in Mexico City.
Mexican President Enrique Pena Nieto speaks on fiscal reform at the presidential… (Jos? M?ndez / EPA )

MEXICO CITY -- Storms and insecurity are further eroding once-optimistic predictions for Mexico’s economic growth, analysts say.

At the start of the year, Mexico’s new government under President Enrique Peña Nieto boasted of a robust economy that would grow at a rate of more than 3.5%, better than many countries in the region. Those boasts earned positive headlines for Mexico beyond its borders, as officials here portrayed a country ready to leap into prosperity.

Now, however, even government economists have had to dial down the projections. Mexico’s economy contracted in the second quarter for the first time in four years. The growth rate is more likely about 1.7%, the government says, or half the prediction of just 10 months ago -- and a little less than half of last year’s pace. Some private economists put the current rate even lower.

Previously, officials reduced projected growth to 1.8%, blaming continued financial sluggishness in the United States, with whose economy Mexico is tightly entwined, and on under-spending by the Mexican treasury in the initial months of the new government.

Last week, Finance Minister Luis Videgaray added more bad news. He said the hurricane and tropical storms that devastated parts of Mexico’s two coasts last month could shave another 0.1 percentage point off growth, to 1.7%. The storms killed about 150 people, destroyed farmland and livestock and crippled roads and other infrastructure.

On Tuesday, the official Bank of Mexico said its monthly survey of experts showed expectations diminishing even further. Its report put anticipated growth at 1.4%.

The government insists the overall economy remains healthy, will avoid recession and will pick up when wide-ranging reforms proposed by Peña Nieto are finally enacted. Those include a tax overhaul and opening the state oil monopoly to foreign investment.

“I’m confident the deceleration is temporary,” Reuters quoted Agustin Carstens, the head of the Bank of Mexico, as saying. He added that Mexico’s “solid macroeconomic pillars” should bring the country out of its slump by early next year.

The shaky economic performance comes as violence continues in many parts of the country.

Statistics out this week show a significant uptick in kidnappings and extortion, crimes that hinder the business environment. Homicides seemed to be continuing a pattern of declining.

The national statistics institute, known by the acronym INEGI, said in a new report that crime and insecurity cost Mexicans roughly $16.5 billion last year, or about 1.34% of GDP. That includes everything from ransom and extortion money paid to the cost of security measures.

Some critics of the government say investors still mistrust an administration controlled by the Institutional Revolutionary Party (PRI), which ruled virtually unchallenged for seven decades and spawned a system of endemic corruption. Peña Nieto's election returned the PRI back to the presidency late last year after a 12-year hiatus, on the promise that the party had cleaned up and modernized. But it’s still a hard sell for some.

“Mexico is not the best option [for investors], even within Latin America, because of double insecurity: for investing and for surviving,” columnist Alejandro Paez Varela wrote.

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wilkinson@latimes.com

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