Mexico’s Economic Performance in a Broader Context
Periodically, headlines and social media circulate the same diagnosis: Mexico grows less than other Latin American countries. Short-term figures seem to confirm this, with projections suggesting Argentina will lead regional growth in 2025 while Mexico barely reaches 1%. Does this mean Mexico’s economy is struggling?
Not necessarily. Comparing countries based on a single year of data is like judging a football game by an isolated play. A proper analysis requires looking at the complete trajectory. When we do, we discover that Mexico has grown less spectacularly than some neighbors, but more stably and with fewer extreme fluctuations.
Steady Growth vs. Bouncing Back
Much of the rapid growth seen in countries like Argentina isn’t due to structurally sound economic performance, but rather bounce-back effects following significant downturns. When an economy suffers a severe contraction due to financial, political, or health crises, simply returning to previous levels can imply high but misleading growth rates. Mexico, however, has avoided these rollercoasters for nearly three decades since the 1994 crisis. It adopted a more orthodox fiscal policy, controlled public debt, maintained low inflation, and built stronger macroeconomic institutions. This limited the room for aggressive fiscal stimulus but also prevented recurring collapses. Mexico’s growth has been more stable, perhaps less eye-catching in the short term but more reliable in the long run.
Smaller Economies and Catch-Up Growth
Moreover, many of these economies are smaller with lower per capita incomes, making it easier for them to achieve higher relative growth rates. There’s a well-documented phenomenon in economics: smaller, low-income economies tend to grow faster than larger ones. Why? Because they start from a lower base, with more gaps to close, more productivity to gain by simply adopting existing technologies or improving basic infrastructure.
This is known as the convergence hypothesis. A country with little machinery, low education levels, or rudimentary logistics can make significant strides with modest investments. However, a more developed economy like Mexico faces a steeper hurdle. It must compete in sophisticated sectors, drive innovation, and create added value in complex production chains.
Absolute vs. Relative Growth
Another statistical factor is that growing 5% with a small economy is different from achieving the same with a large one. In absolute terms, that 5% can represent more profound transformations in infrastructure, employment, and investment when the base is smaller. For an economy like Mexico’s, growing 2% annually already signifies substantial expansion in value added.
Productive Structure and Strategic Decisions
Consider the productive structure. While many South American countries rely on raw materials, making them vulnerable to international price cycles, Mexico bet on an industrial export base. This has allowed it to participate in more complex value chains, especially with the United States. Mexico’s economic stability is a result of long-term strategic decisions.
The Challenge: Transforming Stability into Tangible Benefits
Although Mexico’s economy is stable, the challenge remains to turn this stability into tangible benefits for its population. Growing with discipline is important, but inclusive growth is even more crucial. Here lies a paradox: Mexico cannot—nor should it—embark on an uncontrolled spending spree like some other economies. While the US maintains massive fiscal deficits even in good years, Mexico has chosen prudence. This prudence has been a stability anchor but also a brake on dynamism.
Key Questions and Answers
- Q: Is Mexico’s economic growth poor compared to other Latin American countries? A: Not necessarily. Comparing economies based on a single year’s data can be misleading. Mexico has shown more stable growth, albeit less spectacular, over the long term.
- Q: Why do smaller economies grow faster than larger ones? A: Smaller, low-income economies have more room to grow by simply adopting existing technologies and improving basic infrastructure.
- Q: How does absolute growth differ from relative growth? A: Growing 5% with a small economy is different from achieving the same with a large one, as absolute growth can represent more profound transformations in infrastructure, employment, and investment when the base is smaller.
- Q: What challenges does Mexico face in improving its growth? A: The challenge is to transform stability into tangible benefits for the population while maintaining fiscal responsibility and fostering inclusive growth.
