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Economic analysis Updated: 31 Oct 2018

Domestic demand drives growth in Mexico

Mexico's commitment to stability and reform is producing positive impacts on employment, improved purchasing power for salaries and domestic demand, which has become the driver of economic growth in Mexico, according to the Finance and Public Credit Secretary, Luis Videgaray.

Picture of Financial Reform Directors Meeting BBVA Bancomer

He appraised the current situation, saying that even though the panorama was difficult, Mexico is growing and this is something "we have to nurture”,

Attending the National Meeting of BBVA Bancomer Directors, he said that Mexico's GDP grew by 2.5% last year, and at a rate of 2.6% in the first quarter. “If we exclude the oil sector, the rest of the economy - 95% of the total - has been consistently growing at over 3% for the last six or seven quarters,” he added.

When external demand is not helping, the main driver of the economy is domestic demand

The commitment to stability and reforms is bearing fruit, even in very difficult conditions. Mexico's economy is growing because domestic demand is growing.

He pointed out that vehicle sales grew at a rate of 24% in April, whilst sales by the National Association of Department Stores (Asociación Nacional de Tiendas Departamentales - ANTAD) grew consistently over the first four months. Sales in stores are at their highest since 2001, “which means that the main driver of the economy - at a time when external demand is not helping - is domestic demand”.

Picture of Luis Videgaray Secretary Finance Public Credit

Luis Videgaray, Secretary of Finance and Public Credit

He said that demand and consumption were increasing for three reasons: higher remittances from Mexicans working in the USA; credit expanding at three times the rate of the economy, particularly for consumption and home and vehicle loans; and, most importantly, because the total payroll is increasing, with employment up by 2 million jobs under President Enrique Peña Nieto and salaries increasing.

Mr. Videgaray recognized the autonomy and credibility of the Board of the Bank of Mexico, saying that ”the effect of the structural reforms is bearing fruit in the pockets of Mexican people, and we need to nurture this given the risks we face”.

The Governor of the Bank of Mexico, Agustín Carstens, said that very few countries had faced such challenges in the past, and that “we are living through transcendental moments for the country and for the world”.

The challenge is to generate sustained economic growth with financial stability, which is the common denominator in the objective because the global financial crisis has still not been overcome and is still having significant repercussions throughout the world.

Picture of Agustin Carstens Governor Bank Mexico BBVA Bancomer

Agustin Carstens, Governor of the Bank of Mexico

The crisis has continued to develop and infect other areas. And it has been manifesting itself in different ways. "I believe that the clearest manifestation of this is the low global growth we have experienced over recent years," he said.

At a panel on financial reform at the National Meeting of BBVA Bancomer Directors, Carstens said there had been significant falls in the prices of commodities, such as oil.

We have a certain advantage when it comes to applying the combination of policies to escape from this stagnating world, which is continuing to weigh down on emerging economies, and for these to demonstrate their potential for growth and stability.

This has been reflected in interest-rate and exchange-rate volatility. Mexico is well placed to confront the future. In order to maintain financial stability, Banxico has kept inflation below our target level of 3% for 13 consecutive months, against a difficult backdrop, he said.