Mexico needs to boost industrial output for economic growth

Mexico needs to boost its industrial output to improve its low economic growth and increasing public debt, economic experts told Xinhua.

Jorge Sanchez Tello, a researcher from the Foundation for Financial Studies (FUNDEF) at the Autonomous Technological Institute of Mexico (ITAM), explained that while certain sectors, such as telecoms and services, are growing at three percent, others are anemic.

"One sector is dragging down the economy, the extractive sector, such as oil and mining. Mining, in particular, has fallen by almost 10 percent in the last quarter," he said.

This week, the government reduced its growth estimates for 2016 from 2.2-3.2 percent to just 2-2.6 percent, citing global financial volatility and low industrial demand from the U.S. This would mark the fourth year of low growth for Mexico after 1.35 percent in 2013, 2.2 percent in 2014 and 2.5 percent in 2015.

However, Abraham Vergara, a professor of business studies from Ibero-American University, stated the government should not seek to blame external problems alone.

According to Vergara, the government has not created enough jobs to meet internal needs, having only created 2.1 million jobs in the last three years, instead of the 4.5 million the country needed.

"True, there is a difficult international context but it' s not the only reason. We cannot put all the blame on outside," said the expert.

Vergara also warned of Mexico potentially being trapped in a dangerous cycle of low growth and high debt, which could lead to a recession.

Bernardo Olmedo, an economic researcher at the National Autonomous University of Mexico (UNAM), warned that the government' s focus on exports had left other parts of national industry in dire need of support.

"Industries like automotive, aerospace, and pharmaceuticals have grabbed the attention but they are dominated by international companies. This has left the rest of the national industry behind since it is not part of this effort for exports," said Olmedo.

"There is also no clear strategy from the government in terms of low salaries. We must stimulate the internal market but this cannot be done without stimulating our own industrial economy," he added.

Worse, this combination of low growth and high debt led the Standard and Poor' s (S&P) ratings agency to lower its outlook for Mexico' s sovereign credit outlook from stable to negative this week.

S&P explained in a note that it was particularly concerned, beyond low growth, with Mexico' s rising level of public debt, which has surged from 28 percent of GDP in 2005 to a predicted 45 percent in 2016 and a potential 48 percent in 2019.

"With less growth, the government will suffer more pressure on its finances and perhaps on its level of debt," Joydeep Mukherji, S&P's director of ratings, told Mexico's Radio Formula earlier this week.

Source : XINHUA