Mexico’s GDP will grow above OECD countries, but adjusts estimate

Mexico City. Mexico will grow this and next year above the average of the countries that make up the Organization for Economic Cooperation and Development (OECD), the organization itself revealed, although it made a downward adjustment for its 2024 estimate. A “market “solid labor market”, with historically low unemployment rates, added to the investment in public infrastructure projects and the relocation of companies to the country explain the behavior of the Mexican economy, he explained.

“Private consumption will be a key driver of growth, supported by low unemployment and rising real household incomes. Private investment will gradually benefit from the relocation of manufacturing activity to Mexico. “Exports will continue to benefit from deep integration into manufacturing value chains,” she detailed.

The OECD reduced its growth outlook for 2024 from 2.5 to 2.2 percent. For 2025 it estimates a slowdown to 2 percent. Both forecasts are above the average of countries that make up the organization, 1.7 for this year and 1.8 percent for the next. However, it is below the organization’s projected global growth of 3.1 and 3.2 percent for this and next year, respectively.

The organization stated that in Mexico domestic demand is resilient, in part because “the labor market is solid, with historically low unemployment (2.5 percent in February)”; which is accompanied by an increase in formal employment and a slight reduction in informality. The lag is seen in women’s participation in the labor force, although it has increased, “it remains significantly lower than in its regional peers and other OECD countries.”

The organization also points out that industrial participation in the country has recovered after some weakness in 2023, partly due to the push for relocation and which is observed in the industrial parks that border the United States border, which are located next to it. maximum capacity, while warehouse rental prices and the construction of additional industrial spaces are increasing, the OECD detailed in its Economic Outlook, published this May 2.

Uncertain inflation outlook

In accordance with what is forecast by the OECD, general and underlying inflation in Mexico is expected to continue slowing until reaching the Bank of Mexico’s objective of 3 percent with a range of one percentage point, until the third quarter of 2025. ” However, the inflation outlook remains very uncertain. Inflation may be more persistent than expected, especially in services,” he warned.

In Mexico, reductions in official interest rates are expected to accelerate from the second half of 2024. At this point, the OECD recommended that monetary policy remain restrictive and new interest rate cuts be gradual. Estimates suggest that the reference rate, currently at 11 percent, will drop to 7.50 percent by the end of 2025.

Renewables as a comparative advantage

Although the OECD estimates that the ratio of debt to gross domestic product (GDP) remains around 50 percent, it recommended increasing tax revenues. To achieve this, it proposes various routes, expanding the base of the personal income tax, promoting the collection of real estate tax and continuing to fight against tax evasion. He also recommended promoting policies on renewable energy and water management to take advantage of the relocation of supply chains.

“Adopting regulations that promote private sector investment in renewable energy would help turn Mexico’s great renewable energy potential into a competitive advantage. Improving water management, reducing risks and operating costs and promoting environmental sustainability, would make Mexico an even more attractive destination for the nearshoring”he advised.