Mexico to Overtake Brazil by 2022: Nomura

Mexico’s economy may overtake Brazil as LatAm’s largest economy as early as 2022, Nomura says. Mexico outgrew Brazil last year and should again in 2012, and likely beyond. “If our forecast comes true, it will be a LatAm success story based on liberal economic policies and manufacturing productivity, surpassing a commodity-exporting, more statist approach to the economy represented today by Brazil,” Nomura says. This changing scenario is supported by three main trends in the next decade. Brazil should see 4.5% average inflation over the next decade, versus 3.5% for Mexico. The exchange rate will also be a factor, with the real effective exchange rate for both the BRL and MXP to return to their long term average 20 year values. Finally, Mexico’s average GDP growth should be 4.5%, while Brazil slows to 3.0. Mexico grew 3.9% against Brazil’s 2.7% last year, and Nomura forecasts Mexico growing 3.7% this year, against a 1.9% for Brazil. Politically, a more successful, market-friendly Mexican economy will find more resonance in the region than the relatively more interventionist, statist model followed by Brazil and its close regional allies, Argentina and Venezuela, Nomura says. “We are likely to see the region tending back towards more orthodox economic policies, rejecting the commodity-boom fueled brand of left-wing, often populist, politics of the last 10 years,” the bank says.