Mexico’s Growing Middle Class

Mexico has come in for positive news of late, thanks in part to a forecast published by Nomura Securities that showed Mexico surpassing Brazil as Latin America’s largest economy by 2022. While that’s certainly possible, a more realistic scenario would involve Mexico growing at the upper end of the growth range the IMF has set for it—4.75 percent—while Brazil might grow at the lower end of its IMF growth range—2.75 percent. In this case, Mexico’s economy would eclipse Brazil’s in 2028 or 2029.

To be fair, it isn’t that Mexico is experiencing rocketing growth—the economy should expand by 3.5-4 percent this year. Rather, Brazil’s fortunes have fizzled remarkably fast since 2010.

Unpacking the trends, the oft-cited driver of Mexico’s growth, robust exports to the United States, might be nearing a plateau. Exports of Mexican car and car part to the United States are at record levels; this may prove temporary. Oil prices are likely to come down over the coming months, also cutting into Mexican exports. But having said that, Mexico’s future seems bright for a different reason: a budding middle class. The average Mexican now makes around $14,000 a year.

This will help U.S. producers in turn. A recent article in the Washington Post notes:

The growing middle class that is fast becoming Mexico’s majority is buying more U.S. goods than ever, while turning Mexico into a more democratic, dynamic and prosperous American ally.

Moreover, Mexico’s middle class doesn’t rely on credit the way consumers in Brazil do, so the country isn’t a half-point hike away from screeching to a halt.

Graphic from npr.org