Lack of structural reform hinders Mexico’s economy

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After five years of disappointing growth, the Mexican economy is expanding faster than at any time since 2000.

Trend gross domestic product during the first three months of 2006 grew nearly 8 per cent, investment rose 12.8 per cent – the strongest performance since 1998 – and government revenue grew more than 15 per cent compared with the same period last year.

Central bank reserves are at record highs, and inflation, which in 1987 was 130 per cent, was just 3.3 per cent last year, lower than that of the US.

Guillermo Ortiz, governor of the central bank, told the Financial Times recently: “We are entering a long period – we are in a long period – of economic stability.”

Mexico’s newfound stability has helped fuel a boom in consumer credit and mortgages.

Infonavit, the government’s housing agency, has issued about 2m individual long-term loans for property in the past five years. That is more than it issued in the previous 28 years.

Yet for all the achievements, economists say that Mexico’s long-term growth potential is severely hampered by two things: absence of structural reform and the economy’s dependence on US industrial production.

And given that most analysts are predicting a US slowdown, they say it is probably unrealistic to get very excited about the future.

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