Mexico's economy will accelerate moderately in 2015

If you look closely, you may notice that the traditional perceptions about Mexico and its economic prospects are shifting. I believe this is the result of two significant trends that have recently emerged from the Mexican economy: one that is cyclical and more near-term in nature, and one that is secular and will be more long-term in its duration.

The good news is that both of these trends are beneficial, which is another way of saying that the outlook for the Mexican economy is one of steady improvement.

Let me describe first what I expect for the near-term. The growth rate in Mexico's economy has been sluggish for the past couple of years, but there are indications that it is starting to gain momentum. Real GDP expanded by less than 1.5 percent in 2013, but the growth rate was nearly 2 percent through the first three quarters of 2014. After a gain of 2 percent for 2014 as a whole, I expect the gradual increase in growth to continue through next year, and my forecast calls for growth in real GDP of at least 3 to 3.5 percent in 2015.

One of the drivers of economic growth for Mexico next year will be the accelerating recovery in the U.S. economy. A substantial portion of Mexico's manufactured goods are exported to America, and U.S. demand for these products will increase as the U.S. economy also builds momentum. Mexico's total output of manufactured products will expand by 3.5 percent in 2014, and my forecast calls for a gain in the range of 4 to 4.5 percent for 2015.

Energy products account for a significant portion of Mexico's industrial production, and a sustained decline in the global price of crude oil will have a negative effect on this sector. But the drop in energy-related activity will be partially mitigated by a rise in demand for other types of Mexican-made products, especially consumer products.

The data show that Mexico's plastics industry has benefited greatly from the recent uptrend in its manufacturing sector, and the outlook for the plastics industry is brighter still. According to data from Plastics in Mexico State of the Industry Report that was recently published by Plastics News Research, the Mexican plastics industry (which includes finished products, machinery and resins) is valued at $21 billion per year and rising. The plastics processing segment has enjoyed annual growth of 4.5 percent in recent years, but that growth rate is expected to accelerate to 6 percent in 2015.

PN's report states that growth rates have been particularly strong for those processors that supply the automotive, aerospace and packaging industries. Mexico exports 71 percent of its automotive parts to the U.S., and it is now the second largest supplier of automotive parts for the American market behind Canada.

Mexico's aerospace industry has grown even faster than the automotive industry, and both of these sectors are expected to sustain a strong pace of growth for the next few years. Mexico's plastics packaging industry is by far the biggest processing segment in terms of resins consumed, and annual growth in this segment of at least 5 percent is expected in the coming years.

The recent acceleration in Mexico's plastics processing industry is being noticed by plastics machinery and equipment suppliers. According to a quarterly survey that is conducted by the Committee on Equipment Statistics for the Society of the Plastics Industry Inc., expectations for the Mexican market for plastics machinery in the coming year have never been higher, and the respondents are only slightly less optimistic about the outlook for Mexico than they are for the North American market.

So the story that emerges at the present time from all of the collected data and surveys and market research reports is that the Mexican economy is heavily influenced by the pace of economic activity in the U.S. And since the current outlook for the U.S. economy in 2015 calls for accelerating growth, it means that the Mexican economy is also poised for accelerating growth in the year ahead. This growth will be characterized by strong gains in the Mexican manufacturing sector, and one of the bright spots in its manufacturing sector will continue to be the plastics industry.

That summarizes the cyclical or near-term trends that I mentioned earlier, but I can also perceive a longer-term trend emerging. That trend is a shift in how the governments and companies from the world's more developed economies, particularly the U.S., evaluate Mexico as a place to invest large sums of capital. And this is also changing the way that Mexico views itself.

In the past, Mexico was usually considered in a group with all of the other Latin American countries. This was appropriate for reasons that include: a common language (except for Brazil), comparably low per capita incomes and under-developed economies that rely heavily on the production of commodities.

There is also the historical legacy of government instability and the resulting afflictions of corruption and high crime rates in many of these countries. Mexico is very close to the U.S. in terms of geography, but it has always been far away in terms of economic prosperity.

But as I said, things are changing. If you look at a chart of the industrial production levels for Mexico, Argentina and Brazil you will see that the three lines were closely correlated in the past. But right around 2011, the lines in these charts started to diverge, Mexico's line has escalated over the past few years while the lines for both Argentina and Brazil have been flat to down. This divergence has been the greatest so far in 2014.

The economic data from these countries may converge again at some point in the future, but there is another clear indicator that Mexico is on a path toward greater prosperity in the future. And that indicator is the volume of reliable economic and market data that is being captured and reported about the various segments of the Mexican economy.

There are two conditions that must exist if a country is going to attract and sustain large amounts of investment: stability and transparency. The Mexican government is making strides toward providing greater stability. There is more work to be done in this area, but there has been significant progress recently. Transparency is another word for timely and reliable market information. Unless investors can get copious amounts of this type of data, they will not be willing to invest their capital over the long run. Investors manage uncertainty and risk by collecting and analyzing every bit of information possible.

In the past, Mexico's historical legacy and its lack of market transparency have been the biggest impediments to its long-term economic prosperity. But if you take the time to look closely, you will see that both of these problems are improving. That is not a guarantee of economic growth in the near-term, but it is a prerequisite of a better future.