By: Frank Holder
As Chairman of the Latin America region for a global business advisory firm, Frank Holder is more qualified than most to examine the current financial circumstances in Mexico and explain what they may mean for the country going forward.
A recent news article from Reuters reports that the economy in Mexico recently saw its first contraction in four years when a weak demand for exports, sluggish consumption, and a low rate of government spending made their impacts felt during the second quarter. This prompted the Mexican government to reduce its outlook for the rest of 2013 from its initial prediction of 3.1 percent to just 1.8 percent.
"The new estimates for Mexico's 2013 economic growth of 1.8 percent from the Mexican government were followed by Banamex cutting its growth estimate to 1.2 percent on Wednesday, following Bancomer's new estimate of 1.3 percent," reports Frank Holder. "Finance Minister Luis Videgaray was upbeat, predicting the economy will rebound in 2014 and grow by 4 percent, boosted by exports to a recovering United States."
According to the article, the United States Federal Reserve has recently signaled a potential dialing back of monetary stimulation in the form of buying bonds. Following these signals, currencies in emerging markets have come under an increase in pressure. But while Minister Videgaray admits that this withdrawal of funds increases the volatility of the market, beyond that, it actually presents good news for Mexico's economy, as economic recovery in the United States should translate into an increase in exports for Mexico to their northern neighbor.
"While it is too early to know for sure how the U.S. economy will do, there are reasons to be optimistic," reports Frank Holder. "Videgaray predicted government spending will grow. The Mexican government has some say in spending, but changes in oil investment rules could also give a boost to the country's economy, spurring interest and activity from foreign and domestic investors."
All in all, says Holder, despite the recent economic worry, the outlook for Mexico going forward is still potentially very positive. However, there is always room for aberration in even the surest of predictions. Because of this, says Frank Holder, while Mexico's economic outlook for the rest of the year looks promising, it becomes uncertain once again if one looks too far into the future.