The Mexican economy, as measured by the inflation-adjusted gross domestic product data, will expand 2.5 percent in 2016.
This follows similar gains of 2.5 percent in 2015 and 2.3 percent in 2014. Our forecast for a steady pace of growth in the coming year is based on expectations that a decline in domestic economic activity resulting from the recent drop in oil prices will be mitigated by an increase in demand for Mexican exports from the U.S.
Regrettably, Mexico is not yet able to benefit fully from the strengthening U.S. economic recovery. The Mexican industrial sector is still struggling from a need for infrastructure upgrades and other types of structural reforms necessary to support a more rapid expansion of its industrial capacity. Under current conditions, an annual growth rate of 2.5 percent in its GDP is about all that can be expected in terms of long-term economic growth. And this pace of growth is not fast enough to raise the standard of living for most Mexicans. Recent fiscal reforms will help to attract the necessary investment, but it will take a few years for this process to produce more rapid growth in industrial capacity.
The economic reforms that have already been implemented have been widely-hailed by analysts and large investors in the U.S. At this time last year there was a spate of articles in the U.S. business press about the opportunities for investment in Mexico. So far this year, the investors' worries about the problems with China's economy have triggered a global flight to safe assets. The result of this rush to safer investments is that, as of this moment, the opportunities in Mexico are getting less attention than they were a year ago. Or even worse, the expectations for the Mexican economy in the short-term are being lumped in with the Chinese problems.
Another factor that has distracted investors' attention away from the opportunities in Mexico is the drop in oil prices. Falling oil prices have generated a large amount of uncertainty for investors all over the world during the past year, and the fact that the Mexican government relies heavily on oil revenues has only increased this level of uncertainty. This trend is best demonstrated with a chart of the value of the peso vs. the dollar.