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Mexico changes its economic forecast, still optimistic about growth

A complicated graphic shoeing several red arrows pointing upwards representing a growth in the economy.
23 May 2014

The Mexican Central bank reduced its economic forecast for the year due to the slow growth in the first quarter, according to The Wall Street Journal. While the central bank previously predicted gross domestic product growth percentages as high as 4 percent, it has now reduced that number to about 3.3 percent.

Many believe the Ministry of Finance, led by Finance Minister Luis Videgaray, will also reduce its estimates for GDP growth, which currently stand at 3.9 percent.

"The Finance Ministry will again lower its growth estimate for this year, no doubt about it," said Carlos Capistrán, chief economist for Mexico at Bank of America Merrill Lynch.

Videgaray has stated publicly that he would only change his estimates after looking over the economic data for the first quarter, which will be released on May 22, the source reported.

According to the Journal, it is still a matter of considerable debate among lawmakers in Mexico as to how the economy will fair in the near future. Some have speculated there will be a slight recession, while others remain confident in economic growth.

Some experts, the Journal cited, blame recent changes to the tax code, but President Enrique Peña Nieto's administration believes that these taxes will be offset by government spending, which will total $360 billion.

Remodeling a house takes longer than a day
In a related article by The Economist, Ernesto Revilla, chief economist for the Mexican Ministry of Finance, said that Mexico's reform process is like a house being remodeled. It will take time, he said, and many reforms will be passed before the job of revitalizing the Mexican economy is finished. People will be frustrated at the time it takes, but the day will come when the reforms take hold and the economy expands.

Just recently, according to The Economist, there have been two political advances that may speed up the process of economic reform. One such reform was a law that will increase federal oversight of state elections. This bill also promoted discussion in congress about changes in the energy and the telecom industry - two matters of contention because of state-owned energy company Pemex and Carlos Slim, who owns Mexico's biggest telecom company, América Móvil.

The second driver for economic reform was Gustavo Madero's re-election as head of the National Action Party. According to the source, he is a major advocate for reform in Mexico.

Why companies should consider expanding to Mexico
Although Mexico's economy is still not as big as the economy in China, Mexico still has huge potential for growth. Currently, It's cheaper to build factories in Mexico and wages are still low. It may be a good idea to get into Mexico now while the cost savings of producing in Mexico are at their highest compared to America. Companies can take advantage of Mexico's many trade agreements, including the North American Free Trade Agreement, allowing for tariff-free shipping on almost any goods between the U.S., Mexico and Canada.

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