• Tuesday, March 29th, 2011
Reuters
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10:48am EDT

By Dave Graham

MEXICO CITY (Reuters) – Though it exports more than Brazil and India and enjoys the kind of population growth Russia can only dream about, Mexico has long been in the shadow of its more dynamic emerging market cousins.

Today Mexico has a growing body of supporters who believe it is closing the gap on the so-called BRIC nations as a driver of global growth, powered by rising competitiveness and the willingness to capitalize on untapped financial resources.

Grouped under the “BRIC” moniker coined by Goldman Sachs’ Jim O’Neill in 2001, Brazil, Russia, India and China have leapt up the chart of the world’s biggest economies, and recent forecasts suggest Mexico may soon advance at a similar pace.

Goldman estimates that by 2020, BRIC nations will account for nearly half of global growth, picking up the slack from aging and debt-laden developed economies, notably in Europe.

Mexico, which President Felipe Calderon this week described as a “predominantly middle class society”, should provide the biggest boost to growth from the chasing pack, the bank said.

Despite Calderon’s ongoing conflict with drug cartels that has cost 36,000 lives in the past four years, investors have kept faith in Mexico, piling money into its stock exchange, which hit an all-time high in January.

“The Mexican president doesn’t understand why it’s not called ‘BRICM’,” said Johannes Hauser, managing director of the German-Mexican chamber of commerce (CAMEXA).

Fears persist that Mexico may be hamstrung by political deadlock, government reliance on oil revenues, and fears too much economic power is concentrated in just a few hands.

But for now there is rising optimism Mexican manufacturers have a bright future, having taken on a fraction of the debt of their BRIC rivals, particularly in China.

After the global recession in 2009, Mexico’s economy grew 5.5 percent last year — its fastest rate in a decade — and the finance ministry has said 2011 could be even better.

Sergio Martin, HSBC’s chief economist in Mexico, says one notable advantage the country holds over BRIC rivals is its proximity to the United States, the destination for around 80 percent of its exports, which totaled $300 billion last year.

“It’s like how Eastern Europe is profiting from Western Europe,” said Martin. “We are modernizing.”

The dependence on its rich neighbor could leave Mexico exposed if the U.S. economy falters. This risk should diminish if predicted growth results in a more resilient local economy.

HSBC said in January it expected growth in Mexico’s per capita GDP to be 3-1/2 times faster than the U.S. this decade.

Mexico outperformed Russia in 2010 in growth, and HSBC forecast it would lead the charge in Latin America in coming years to become the world’s eighth biggest economy by 2050.

YOUTHFUL AND SOLVENT

Barely five percent of the workforce are jobless in Mexico, which has a median age of 27, compared to 29 in Brazil, and 35.5 in China, the CIA’s World Factbook says. Russia stands at almost 39, and its population is down nearly 4 percent from 1995. Mexico’s rose about a quarter to 112 million since then.

Though investors have been plowing money into Brazil, attracted by high interest rates, data suggest that Mexico may have more leeway to draw on outside capital to fuel growth.

According to Fitch Ratings’ sovereign data comparator, private sector credit in Mexico was worth 25 percent of gross domestic product (GDP) in 2009, well below any BRIC nation.

By contrast, it stood at 134 percent of GDP in China and 203 percent in the United States. Mexico’s government has also maintained scope to invest by keeping spending under control.

In a phase when public borrowing was rising fast globally due to efforts to boost growth, according to Fitch estimates Mexico in 2010 managed to cut its general government debt to some 38 percent of GDP — less than half the U.S. level.

Businesses needing cash need look no further than Mexico’s financial sector, which is well-placed to bankroll growth, said Eduardo Suarez, an economist at Royal Bank of Canada (RBC).

“The lowest ones have capital (adequacy) ratios of 16 percent, but many of them are in their 20s or higher,” he said.

Banks in AAA-rated nations had an average ratio of 12.6 percent in 2009, and of 15.7 percent in Latin America and the Caribbean, according to Fitch. Mexico stood at 16.5 percent.

The country’s previous reluctance to introduce new financial tools to attract fresh capital is also changing.

Earlier this month, Mexico launched its first real estate investment trust (REIT), while the derivatives exchange said it would expand the range of debt future instruments on offer.

Yet doubts linger about how much help the economy will get from lawmakers unaccustomed to bipartisan cooperation.

The main opposition party recently proposed bills to overhaul the tax system and make the job market more flexible. Age-old rivalries could condemn the plans to oblivion.

“The political parties don’t look to the nation as a whole, or at the long term, they’re trying to satisfy political strategies over the short term,” said Martin at HSBC.

For now, Mexican companies are forging ahead regardless.

While rising wages in China and other BRIC economies have fueled talk they risk overheating, Mexico has successfully held down labor costs and increased its market share.

“Mexico’s export resilience may prove greater than expected partly because the wage gap to China has closed from about 300 percent ten years ago to 14-15 percent,” said RBC’s Suarez.

Category: BRIC, China
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