Remarks by Angel Gurría,
10 January 2017
Mexico City, Mexico
(as prepared for delivery)
Dear Secretary Meade, Ladies and Gentlemen,
I am very pleased to present the OECD’s Economic Survey of Mexico for 2017 in the company of the Secretary of Finance and Public Credit, José Antonio Meade.
This year, we have focused our report on the strength of the macroeconomic framework, and more particularly on ways to boost productivity and promote more inclusive growth, which are two of the greatest challenges facing our country.
Mexico is facing difficult times. The international economic outlook is still very complicated. The world economy has been languishing for five years now in a low-growth trap, with disappointing performances marked by annual growth rates that have stagnated at around 3%. For 2017 we expect at best a slight improvement to 3.2.
In fact, the international economy has now entered a perverse cycle in which negative expectations are undermining the private sector's investment and production plans, while at the same time public investment is being cut back, reducing expenditure and limiting increases in potential output. This has stymied growth in international trade flows, labour productivity and wages.
Against this highly complicated global backdrop, Mexico has had to face various headwinds such as collapsing oil prices, a restrictive monetary policy in the United States, and a sharp depreciation of the peso. In addition, expected changes in international trade policies are creating a new source of risk and uncertainty for the Mexican economy. In fact, these circumstances have led the OECD to revise downwards its growth forecasts for Mexico, to around 2.2% for 2016, 2.3% for 2017, and 2.4% for 2018.
Despite these unfavourable factors, Mexico's economy continues to grow at a moderate but steady pace, driven primarily by domestic demand. The peso's steep depreciation has boosted the competitiveness of Mexico's non-oil exports without driving up inflation to any significant extent. The depreciation is also having a positive impact on the fiscal balance, as oil revenues are denominated in dollars and the foreign-currency debt exposure is low.
To these positive factors can be added an expansion of credit combined with modest increases in real wages, employment and remittances. Our analysis also points to an increase in purchasing power, in part as a result of the recent structural reforms that have reduced consumer prices, especially for electricity and telecommunication services. In fact, prices of telecommunication services declined by around 23% between 2013 and 2015: the cost of cell phone calls dropped by 32%, while prices for long-distance calls fell by 40%. In addition, there was an increase of 12.5% in the number of households with Internet services, and the proportion of individuals with Internet on their mobile telephones rose from 23% in 2013 to 54% in March 2016. The international oil prices and those of Mexican oil rose by 20% in the last 3 months, an increase that reflected itself in the price of fuel.
Thanks to the reforms now in place, productivity has been growing in some key sectors, such as energy, finance and telecommunications. Growth in total factor productivity has in fact accelerated in the top 10% industries with the highest level of total factor productivity, while the broad downward trend in productivity in the remaining 90% has stabilised. Institutional design has also improved, with the new National Committee on Productivity, a beefed-up competition authority, and sector regulators that have clear mandates.
These are important steps forward, but much remains to be done.
Mexico continues to face great economic and social challenges. Of particular concern to us is the fact that, at current levels, growth will not be sufficient to overcome the country's enormous inequalities. Our economy would have to grow at rates above 5% in order to generate the opportunities that Mexican society needs. But we will not be able to grow at such rates with the levels of poverty and inequality that we have today, or with the productivity imbalances in our business sector. We must break this vicious circle.
Economic policies must now focus on redistributing opportunities for education and training; on redistributing incomes between a modern, highly productive economy and a traditional economy with low productivity; on redistributing productive resources, more access to credit, and support for technological development; on redistributing incentives to foster formalisation; and on redistributing opportunities and power between men and women.
This is one of the outstanding challenges. Gender inequalities constitute one of the biggest obstacles to Mexico's development. The government has instituted some very important changes to improve the work force participation rate of women between 25 and 53 years of age. Yet with a female participation rate of 55%, Mexico still falls short of the OECD average (72%), and there is a glaring gap with the participation rate for Mexican men (94%). What is worse, in the field of gender equality, is that Mexico does not only fall short of the OECD countries but also regarding various countries from Latin American region, including Peru, Colombia, Argentina, Chile and Brazil.
As noted in the report entitled Building an Inclusive Mexico: Policies and Governance for Gender Equality, which we have just presented with the National Women's Institute (INMUJERES), achieving economic empowerment for women is one of the most effective policies for sustainable development. The inclusion of women in economic activity can be a very powerful driving force: OECD studies show that if the gender gap in terms of labour market participation could be halved by 2040, GDP per capita could rise by 0.2 percentage points a year over the baseline projection. This would be equivalent to an increase of USD 1,100 per capita by 2040, one of the greatest projected increases among OECD countries.
The government, then, must continue to strengthen legislation for combating discrimination in wages, hiring, training, and the promotion and retention of talented women, including the use of gender quotas. This must be accompanied by a national strategy to combat gender violence and sexist stereotypes, especially via television and the other media of mass communication. México should take advantage of the talents of its women. The government and the families have inverted in girls’ education for various decades, and it is a waste not to establish the conditions for Mexican women to reveal their whole potential.
To move toward these goals and to build a more inclusive, more productive and more successful country, it will be very important to increase social spending. This is one of the central recommendations of the Survey. The level of social spending in Mexico is too low to do away with poverty and to reduce inequalities. It is in fact among the lowest in the OECD as a percentage of GDP. The country needs greater and better-targeted social spending that will strengthen programmes for combating poverty and for promoting health, education, skills development, labour activation and formalisation, and social security.
To make this possible will require decisive steps to boost government revenues, reduce tax evasion, enhance security, and combat corruption. If these reforms are to be truly successful, if entrepreneurs are to be able to launch businesses, and governments are to be able to manage public spending properly and improve social welfare, the high levels of insecurity and corruption in Mexico will have to be addressed.
The government of Mexico is taking some important steps in this direction, with reforms to the judicial system, the strengthening of the supreme audit institution, and approval of the national anticorruption system, among other measures. Mexico's joint work with the OECD on public procurement, regulatory improvement and integrity is also bearing fruit. Those efforts must be stepped up, and they must be made effective at the local level. Only in this way will he be able to move forward.
Ladies and Gentlemen, Mexico's macroeconomic fundamentals are solid and well administered, monetary policy is appropriate and independent and is handled in a responsible way, and the reforms are beginning to show results. Mexico is improving its capacity for growth from within. But much remains to be done to transform these reforms into inclusive growth. Much more must be done to end poverty. Today more than ever, Mexico's economic policy must be focused on redistributing income, opportunities and the factors of production.
Mexico must place the productivity-inclusion link at the heart of its economic policy. This is a recurrent message in our Survey. And we are very lucky to have a personality like José Antonio Meade, a dedicated public servant with a clear social conscience, in charge of the country's economic policy and the gradual implementation of the recommendations from the Survey. The OECD will continue to support Mexico's efforts to build a more inclusive, more sustainable and more successful country.
Thank you very much.