There is a rising star in Latin America. And it is not the a member of the BRICs, but Mexico.
Mexico has received consisten attention regarding its security challenges, but things have started to change over the past few months. In August, Nomura published a report that forecast Mexico would become Latin America’s number-one economy by 2022, stating that “the recent relative outperformance of the Mexican economy to Brazil could prove to be long lasting."
That’s a controversial argument when considering Brazil’s explosive growth during the past years. While its recent economic performance has been weak, this does not imply that South America’s giant will not be able to recover. Or does it?
Brazil’s rapid economic growth was not only due to a favorable macroeconomic outlook and the timely implementation of much-needed reforms, but also, and more importantly, to China’s insatiable appetite for natural resources. The Chinese government has been progressively increasing its presence in foreign markets to guarantee a steady supply of resources, especially energy. This is critical for the Chinese Communist Party, as its legitimacy rests on providing good economic prospects to its population.
In a move that was long anticipated by investors, Fitch Ratings downgraded Mexico on Monday to BBB—only two grades above non-investment grade, or junk status. The change by Fitch has been attributed to falling oil production and declining tax revenues due to this year’s expected 7 percent contraction of GDP. Moody's Investors Service, another major ratings agency, said last week that a downgrade of Mexico's credit rating may come "at some point" but that it will not be lowered "for now."
Mexican Finance Minister Agustin Carstens, who had sought to avoid the downgrade, indicated prior to the move that “a downgrade would not be good, but it would not be disastrous either.” According to Mr. Carstens, Mexico will secure as much as 75 percent of its $8 billion international financing needs next year through multilateral organizations such as the World Bank, thereby eliminating much of the country’s need to finance its debt on international capital markets.
June 1: This AQ-Efecto Naím segment looks at sustainable cities in the hemisphere.