INVESTORS who were starry eyed about Mexico’s economic potential at the start of the year are now having misgivings. From a record high then, the stockmarket fell to an eight-month low on May 21st. Just to rub it in, stocks in Brazil, which Mexico views as its main regional rival, have recently been performing much better.

The immediate catalyst for the change of mood is the economy. In December, just as President Enrique Peña Nieto came to power promising to increase Mexico’s growth potential, the country’s strong recovery from the 2008-09 global financial crisis hit the skids. In the first quarter of 2013 sluggish sales to the United States, by far Mexico’s largest export market, helped reduce growth to a modest 0.8% compared with the same period in 2012. A fall in public spending as a new party took power contributed to the dip.

The government blamed part of the weakness on the early Easter holiday (it had previously blamed poor December numbers on the fact that Christmas fell at mid-week). Nevertheless, on May 17th it lowered its growth forecast for the year to 3.1% from 3.5%.

Other economic data in recent days have added to the worries. Foreign direct investment last year plunged to $12.7 billion, from an average of around $23 billion during the past decade, according to CEPAL, a UN-linked research organisation. It said the figure was affected by one-offs, such as a decision by Spain’s Banco Santander to list its Mexican subsidiary, raising $4 billion. That counted as an outflow of foreign investment. Some economists pointed to concerns that high levels of drug-related crime may also be taking a toll on investment, notably in tourism. Last year Mexico slipped out of the top ten of global tourist destinations.

Reading too much into a few months’ numbers would be risky, though. The optimism about Mexico was never based on this year’s economic growth. Even before the disappointing first-quarter GDP report, the OECD, a Paris-based think-tank for industrialised countries, had issued a study on the Mexican economy predicting a weak 2013 because of feeble demand abroad. Part of the motivation for the reforms that Mr Peña has kick-started is that the country is too dependent on the vagaries of the global economy, and needs to generate more of its own dynamism by freeing business at home.

In a six-year “national development plan” unveiled on May 20th, the government stressed how the economy performs below its potential. In the 30 years to 2011 it grew on average by just 2.4% a year, while productivity fell by 0.7% a year. Chile, meanwhile, grew by 4.9% a year and saw productivity increase by 1.1% a year. The OECD bemoaned Mexico’s record: it is alone among big emerging markets in suffering from sustained declines in the broadest measure of productivity during the past decade. In order for GDP growth to rise from its current potential of about 3% to a healthier 4%, the productivity trend must be reversed through structural reforms, it said. Mexico’s three main political parties, which have created a pact to promote more than 100 such changes, are aiming for 5%.

Recent reforms to increase the effectiveness of education, to reduce job protection for unionised workers, and to increase competition in the telecommunications, media and banking industries, may boost growth if they are fully implemented. But the OECD says that Mexico needs to go further. It calls for a mixture of policies to reduce the size of the informal economy, where 60% of employment languishes, mostly in small, inefficient companies. It also argues for a stronger legal system that enforces competition laws, for example, and improvements to the criminal-justice process to make life safer for individuals and firms.

Later this year the government hopes to push through radical reforms in the state-controlled energy sector. These could prove to be a spur for investment and productivity. There is likely to be a fierce political battle to pass them. Gray Newman, an economist at Morgan Stanley in New York, says that complacency about the economy could be a bad thing on the eve of such ambitious reforms. In fact, he says, “Some downward revisions in GDP growth could be exactly what the doctor ordered.”