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Global Outlook

Latin America’s “Hidden Gem”

July 7, 2014, Monday, 03:40 GMT | 22:40 EST | 07:10 IST | 09:40 SGT
Contributed by eResearch

Mexico garners some bad press from its much publicized problems with drug-related crime and violence, but don’t let that distract you from the country’s otherwise solid economy, Latin America’s second largest after Brazil. Following a lackluster 1.1 percent real-GDP growth last year, the Mexican economy should expand about 3 percent this year and accelerate further to about 4 percent in 2015. An export-oriented economy in close proximity to the U.S., Mexico should directly benefit from the continued recovery of its northern neighbor. As wages rise in countries like China, moreover, Mexico could look increasingly attractive as an alternative off-shoring base for U.S. companies.

The latest data shows Mexico’s employment rate, as of March, at 4.8 percent. Inflation (a key concern for many emerging economies) sits at only 3.5 percent, below the 4 percent upper limit that The Mexican central bank considers acceptable. In short, Mexican monetary policymakers are currently under no pressure to tighten, and actually have leeway to ease if necessary. Indeed, they already cut the benchmark overnight lending rate three times, to 3.5 percent, last year.

Furthermore, under the Enrique Nieto administration, Mexico should be a business-friendly environment. After coming to power in 2012, he has already pushed a number of reform bills through the Mexican Congress. One of the most important has opened its energy sector to private domestic and international companies. Previously, Mexico’s oil properties were all under state control.

Mexico’s state-owned PEMEX simply didn’t have sufficient capital to access all of the country’s sizeable oil reserves. But with foreign investment, it can tap more of its reserves, increasing the size of Mexico’s oil industry. Allowing private involvement could give the country a much-needed shot in the arm and is expected to boost growth by 1 percentage point by 2018.

We view Mexico as one of Latin America’s most attractive investment opportunities.