Fiscal stimulus will help Mexico’s economy rebound from its worst performance since the 2009 recession, Finance Minister Luis Videgaray said.
Government spending increased 19.9 percent in January from a year earlier and was also “robust” in February, Videgaray said today in an interview at the Bloomberg Economic Summit in Mexico City. He reiterated the government’s forecast for the economy to grow 3.9 percent this year, up from 1.1 percent in 2013, as homebuilding recovers following last year’s collapse.
“Spending is being implemented in an expedient manner,” Videgaray said. “This will be a very different year in terms of housing.”
Videgaray’s forecasts are more optimistic than those of analysts surveyed by Bloomberg, whose median estimate is for expansion of 3.25 percent this year. Mexico cut its growth estimate four times last year as exports to the U.S. stagnated and the government reduced public spending after President Enrique Pena Nieto took office. The central bank reduced interest rates three times in 2013 to a record 3.5 percent as twin hurricanes and debt defaults by the largest homebuilders helped damp expansion to 1.1 percent.
Mexico’s free-floating peso is helping to insulate the real economy from the effects of reduced monetary stimulus in advanced nations, leaving the country well positioned to weather the volatility, Videgaray said.
The currency gained 0.1 percent to 13.267 per dollar at 1:12 p.m. in Mexico City, paring its loss to 9.7 percent since reaching an almost two-year high in May, when then-Federal Reserve Chairman Ben S. Bernanke signaled the U.S. central bank would begin to pare stimulus.
Congress has approved a budget deficit of 1.5 percent of gross domestic product for this year, the largest gap since 2010, to allow the government to boost spending after delays last year caused by the transition to a new presidential administration held back economic growth.
The fraud that resulted in the takeover of oil services company Oceanografia SA was an isolated case, Videgaray said in a separate interview. The company was seized by the government on Feb. 28 after Citigroup Inc. said a $400 million loan its Banamex unit made was backed by non-existent accounts. The investigation of the company is focused on activities during the second half of last year and early 2014, when Oceanografia allegedly falsified documents, Videgaray said.
Edgardo Sternberg, an emerging-market debt strategist at Boston-based Loomis Sayles & Co., also said Oceanografia’s alleged fraud was probably a one-off case. Rule of law remains a problem for Mexico, and the nation could attract more investment if the security situation is improved, he said at today’s summit.
Mexico’s energy industry will be under more scrutiny following the Oceanografia case, said Raul Martinez-Ostos, the head of Mexican operations at Barclays Plc. The alleged fraud is putting the sector “under a magnifying glass,” and the case shows the need for stronger corporate governance, he said.
Constitutional changes passed last year to open Mexico’s energy sector to private investment will lead to more sustained economic growth, said Alberto Jones, the Mexico head for Moody’s Investors Service. Moody’s upgraded the country’s credit rating last month to A3, one level above rankings by Standard & Poor’s and Fitch Ratings.
Increased energy investment could also lead to more initial public offerings, said Luis Tellez, the chief executive officer of stock exchange operator Bolsa Mexicana de Valores SAB.
Not all analysts are as sanguine on Mexico. Samantha Ricciardi, BlackRock Inc.’s Mexico head, said at today’s event that the stock market is overvalued despite the IPC index’s 13 percent retreat from a January 2013 record.
The economy still has “quite a bit of slack,” said Simon Nocera, the founder and chief investment officer at Lumen Advisors LLC.
“There’s a healthy amount of skepticism right now because of the disappointment of last year,” Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington, said in an interview today. “There will be more growth this year than last year, but whether it gets up to the 3 percent, 3.5 percent range is something that we have our doubts about.”
Videgaray said Mexico’s economic reports so far this year have been mixed. While the economy last year grew less than one third of the 3.5 percent that the government forecast at the start of the year, more data is needed before deciding if an adjustment to this year’s forecast is warranted, Videgaray said.
Asked about the U.S. case of Argentina against holders of its defaulted debt, Videgaray said Mexico will file an amicus brief with the U.S. Supreme Court backing the Latin American nation. There’s a risk that a ruling against Argentina would create a precedent making any future sovereign debt restructuring more difficult and more expensive, he said.