Last year, Mexico had to cut its growth estimate four times after stagnated exports to the US and reduced government spending after President Enrique Pena Nieto took office. Mexico also experienced debt defaults by the largest homebuilders. Mexico’s economy had the worst performance since the 2009 recession.
This year Mexico decided to turn to fiscal stimulus for economic growth. Government spending increased 19.9 percent in January from a year earlier and was also “robust” in February, according to Videgaray, Secretary of Finance and Public Credit of Mexico. He reiterated the government’s forecast for the economy to grow 3.9 percent this year, up from 1.1 percent in 2013, as homebuilding recovers following last year’s collapse. His estimate appears to be higher than the median analyst estimate of 3.25% surveyed by Bloomberg. Videgaray also mentioned that the country is best positioned to weather volatility among emerging markets because its free-floating peso is helping to insulate the real economy from the tapering of monetary stimulus in advanced nations. It’s time to wait and see – maybe it’ll turn out to be a piece of proof to the degree of effectiveness of fiscal policies.
Source: Bloomberg
2 Comments
Do you know the Mundell-Fleming model? Mexico is significantly smaller than the US, and closely intertwined. Would fiscal stimulus (if that’s what this is) boost Mexico’s economy or mainly spill over to help ours? What would you expect to happen to interest rates and/or the exchange rate? Does that boost or diminish “the” multiplier??
The development of Mexico creates positive externalities that effect the United States and Mexico’s smaller neighbours to the south. I would be very interested to see the effect of drug cartel violence on the Mexican economy.
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