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Mexico Will Be The 6th Economy That Will Grow The Most in 5 Years

By 2020, Mexico would be the sixth economy that will grow the most according to estimations of the IMF (International Monetary Fund). The way, so that this happens, will be full of bumps in the world-wide economy and Scotiabank pointed out that several factors like the petroleum and the exchange rate will have a part to play.

Mexico would be the sixth economy that would present/display the most growth in the following five years, with an expansion of its Gross Domestic Product (GDP) of 624.000 million dollars (USD), according to Scotiabank.

The branch of the Canadian bank in the country calculates, based on considered facts by the International Monetary Fund (IMF), that the nominal GDP of Mexico will grow 28% until 2020, over Brazil and the United Kingdom and underneath the United States, China, India, Germany and Japan.

“The perspective of Mexico in a medium and long term continue being positive, seen by the IMF. We have many ingredients to grow at a faster rate”, commented Mario Correa, Chief Economist at Scotiabank.

According to the Chief Economist, this one is a special measurement, “because they use international dollars with an approach of purchase parity, this calculation takes into account the commerce that the different countries have, which is a finer measurement of the value that the production can have”.

This perspective follows the tendency of which Mexico by 2050 will be the sixth greater exporter world-wide, with a sales volume of way over 1.9 trillions (1,900,000,000,000,000,000) of U.S. dollars, according to a study made by HSBC Bank and Oxford Economics.

Automotive and aerospace are among the strengths of the national economy for 2016 and in the medium and long term.

“The trend in the automotive sector is profiting. Car sales in the U.S. have been increasing since 2010, this is a trend that will continue. Also the aerospace industry, which is not much mentioned, is in a similar situation,” says Mario Correa.

In 2015, 3.4 million cars were made, of which 2.7 million were exported. These are numbers never before seen, says Eduardo J. Solis, executive president of the Mexican Association of Automotive Industry (AMIA). And by 2020 the figure will be five million units per year.

A Difficult Future

For the rest of 2016, Scotiabank estimated that Mexico’s GDP will grow by 2.5% in anual terms. 672,000 new jobs, inflation will be 3.87% and the average exchange rate will be between $16.00 and $23.00 MXN per USD, with an average of $17.80 MXN per USD.

The Mexican crude oil will recover its price near to $33.00 USD per barrel, according to estimates from the bank.

But given the high volatility in the markets, which create uncertainty, there are some factors that -as perceived by the Chief Economist at Scotiabank- could affect Mexico’s economy.

The Chinese economy continues its downturn, negatively affecting the perception of emerging markets, growing throughout 2016, 6.4%.

The demand for raw materials (wheat, copper, steel, soy) that China has been doing, is weakening year by year due to the slowdown in the world’s second largest economy. This results in a drop in prices because many emerging economies specialize in producing these raw materials.

Unforeseen Shocks

These are factors that are completely out of any script. An example of this might be the severe frosts in the United States.

“The last two winters have been particularly cold in the U.S., when this happens, ports are closed and goods stop flowing which affects the economic activity,” said Mario Correa.

The terrorist attacks in Paris and escalating geopolitical tensions are other factors that can affect global economy in 2016.

Human Decisions

“This year, there will be more human decisions to be taken and that will influence the markets,” emphasizes the Chief Economist at Scotiabank.

In previous years, the Chinese economy grew because it had many workers for very low wages that could work up to 14 hours a day. That was China’s economic advantage for a long time. But gradually these workers were earning more and now it is not very profitable for companies in China.

“Many companies will no longer produce in China because labor is no longer cheap and does not represent a competitive advantage. To address this, China must move to a market economy, China should allow their markets to keep functioning. But China’s strength has always been focused on the political elite in the Chinese Communist Party, the people making all the calls to the letter and the markets do not work well in this pattern. Markets are looking at how people interact with each other,” said Mario Correa.

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