Mexico - OECD Economic Outlook 2019

 177

Mexico Growth will pick up gradually, as robust remittances, increases in minimum wages and declining inflation will boost consumption. Investment has been weak but will gradually strengthen on the back of lower interest rates. Export growth will decline owing to less favourable global conditions, especially in the United States.

Informality remains widespread and inequalities across regions are high.

Monetary policy will appropriately become more accommodative, given declining inflation and the prevailing slack in the economy. Fiscal policy will need to remain prudent to stabilise public debt. Boosting productivity requires more competition and continuing efforts to strengthen the rule of law and to reduce crime.

Increasing low female labour market participation by expanding access to early childhood education would boost growth and inclusion.

Economic activity has weakened Trade tensions and policy uncertainty have reduced business confidence and held back investment. The industry and agriculture sectors are weak while services remain more resilient. Due to lower fuel prices, inflation is falling, boosting purchasing power and private consumption. Government consumption is subdued, as federal government spending remains restrained. Job creation in the formal sector has fallen and unemployment has edged up. The current account deficit has declined in line with slowing domestic demand.

Mexico Investment is weak

Remittances are increasing

Volumes

Index 2013Q1 = 100 160

3-quarter moving average 2013 USD per capita¹ 90 80

GDP

150

Investment

140

70

Consumption Exports

60

130

50 120

40

110

30

100

20

90 80

10 2013

2014

2015

2016

2017

2018

0

0

1996 98

00

02

04

06

08

10

12

14

16 2018

0

1. Population figures projected from 2019Q1 onward.

Source: OECD Economic Outlook 106 database; OECD Population Statistics; and Bank of Mexico.

StatLink 2 https://doi.org/10.1787/888934045753

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019

178 ď ź

Mexico: Demand, output and prices 2016

2017

Current prices MXN billion

Mexico GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1 Total domestic demand Exports of goods and services Imports of goods and services Net exports1 Memorandum items GDP deflator Consumer price index Core inflation index2 Unemployment rate3 (% of labour force) Current account balance (% of GDP)

20 118.1 13 188.7 2 417.6 4 612.4 20 218.7 296.6 20 515.3 7 456.4 7 853.6 - 397.2 _ _ _ _ _

2018

2019

2020

2021

Percentage changes, volume (2013 prices)

2.1 3.2 0.5 -1.6 1.8 0.0 1.7 4.2 6.4 -0.7

2.0 2.2 1.4 0.6 1.7 0.1 1.8 5.7 6.2 -0.2

0.2 0.6 -0.8 -3.5 -0.5 -0.1 -0.7 3.7 0.3 1.2

1.2 2.1 0.9 1.4 1.8 -0.1 1.7 3.7 4.6 -0.3

1.6 2.5 0.8 2.1 2.2 0.0 2.2 3.0 4.5 -0.5

6.6 6.0 4.7 3.4 -1.7

5.3 4.9 3.8 3.3 -1.8

3.5 3.5 3.6 3.5 -0.7

2.7 2.7 2.9 3.4 -1.1

2.7 2.7 2.7 3.3 -1.6

1. Contributions to changes in real GDP, actual amount in the first column.

2. Consumer price index excluding volatile items: agricultural, energy and tariffs approved by various levels of government.

3. Based on National Employment Survey.

Source: OECD Economic Outlook 106 database.

StatLink 2 https://doi.org/10.1787/888934046684

Reforms are required to promote more inclusive growth Monetary policy will appropriately become more accommodative, as inflation is below the 3% target and economic slack widens. Fiscal policy will continue to be prudent, targeting a primary budget surplus of 1.0% this year and 0.7% in 2020. This strikes an appropriate balance between the need to stabilise debt and to safeguard social spending. Boosting tax collection, by strengthening tax administration and eliminating regressive exemptions, would create more space for infrastructure investment and social outlays. Establishing an independent fiscal council would reinforce the fiscal framework and improve transparency and accountability.

Stronger and more inclusive growth requires boosting productivity through reforms. Pursuing the fight against corruption, for example by reinforcing whistle-blower protection, would contribute to higher investment and public sector efficiency. Accelerating reform implementation in key policy areas, such as judicial reforms, is crucial to improve the business environment and achieve higher investment and growth.

Granting competition authorities and sector regulators adequate resources to carry out their mandates would help to boost productivity and reduce prices, particularly benefiting low-income households.

Informality has fallen slightly but it still affects 60% of employment. This calls for additional and coordinated efforts, such as reducing social security contributions for low-wage workers or simplifying procedures for the registration of companies. Expanding early childhood education, and raising its quality, would improve school outcomes and allow more women to take up paid work. Continuing to reduce the duplication of social programmes would create space to expand their coverage.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION Š OECD 2019

ď ź 179

Growth is projected to increase modestly The economy is expected to strengthen gradually in 2020 and grow by 1.6% in 2021. Consumption will be a key driver of growth, aided by higher wages and strong remittances. Declining interest rates will support a gradual increase in investment. Upside risks include a better-than-expected performance in the oil sector, as production focuses on exploiting high yield opportunities. The construction sector also holds potential for upside surprises, following the recent removal of some restrictions on construction sites in Mexico City.

Downside risks include further trade tensions with the United States and renewed episodes of financial volatility in emerging-market economies, which could increase debt-financing costs.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION Š OECD 2019