A renewed strategy to boost growth and well-being in Mexico

by Sonia Araujo and Lisa Meehan, Mexico Desk, OECD Economics Department

The Mexican economy has benefited from strong fundamentals. A strong macroeconomic policy framework has underpinned moderate growth, in the face of a number of shocks the economy has experienced in the recent past. Monetary policy has successfully tamed inflation and prudent fiscal policy has halted the rise in the debt-to-GDP ratio. The financial system is strong and a number of financial buffers in the form of stabilisation funds and international reserves cushion against tail risks.

The macro framework has brought stability to the economy but
it has not been enough to deliver strong growth. GDP growth has been moderate,
particularly compared with other emerging market economies, averaging only 2.2%
a year since 2009. The relatively modest growth that has occurred chiefly
reflects a demographic bonus, as Mexico’s young population entered the labour
market. Mexicans work far longer days than anyone else in the OECD.  But owning to low productivity, Mexico’s GDPpc
remains the lowest in the OECD as the country has not converged to higher
living standards (Figure 1). Mexico has the macro right, now it is time to work
on the micro.

The 2019 OECD Economic Survey of Mexico looks into policies that will make growth more robust and equitable. The main findings are:

• Maintaining macroeconomic stability is key to
  smooth adjustment to shocks in the context of heightened uncertainty and to
  provide confidence to economic agents in the medium term.
• Implementing a comprehensive strategy to boost
  productivity and inclusiveness calls for an integrated package of reforms
  across several policy areas as policy complementarities matter.
• Increasing equity and providing opportunities
  for all, including women, indigenous populations, and lagging regions should be
  an integral element of the reform agenda to solve Mexico’s stark  disparities in economic dynamism, poverty and
  well-being (Figures 2 and 3).

Many reforms are able to simultaneously lift growth and
share the benefits more widely. These are: raising educational outcomes,
enhancing women’s participation in the labour market, improving incentives to
job and business formalisation, improving regulations to spur competition,
boosting infrastructure, further enhancing trade and participation in global
value chains, particularly SMEs. The redistributive role of fiscal policy also
needs strengthening.

Stronger institutions are key to attaining stronger growth and increasing fairness and opportunities for all. Reducing corruption, insecurity and crime would boost economic activity and especially benefit the poor and underprivileged. They are also an integral ingredient to making all other reforms work. Mexico should continue efforts to reduce crime and impunity and complete the implementation of the National and Local Anticorruption Systems reforms and monitor the results, especially focusing on the capacity of the different states to strengthen their institutional arrangements.

Further reading:

OECD (2019), OECD Economic Surveys: Mexico 2019, OECD Publishing, Paris. https://doi.org/10.1787/a536d00e-en