By Michael O’Boyle – Published on Bloomberg Professional Terminals
(Bloomberg) — Mexican economic growth will contract next year due to the cost of rising violence, according to a report on Friday that recommended the government quadruple military spending.
Bianca Taylor, a former sovereign analyst at Loomis Sayles & Company, said in a report by her independent research firm Tourmaline Group that Mexico’s economy will contract 0.3% next year. Taylor’s growth estimate is significantly lower than the median 1.2% growth rate forecast by 28 analysts surveyed by Bloomberg. It’s based on models that use data from a report published earlier this year by the Institute for Economics and Peace.
“Our call is based on underlying structural factors that the market is ignoring. Security — or lack thereof — is the most important issue in Mexico, and it’s only going to get worse if there isn’t a serious effort to course correct,” Taylor said in an email response to Bloomberg.
Taylor said Mexico needed to boost its military spending from less than 1% of gross domestic product to around 4% or 5% of GDP based on the experience of Colombia, which fought a decades long battle with better armed and better funded militias that are analogous to Mexico’s powerful drug gangs.
If President Andres Manuel Lopez Obrador increases military spending, economic growth could reach an average of 2.8% over 2022 to 2024 compared to an average 0.2% if violence continues at similar levels without additional spending.
S&P Global Ratings analyst Joydeep Murkherji said on Thursday in an interview on El Financiero TV that crimes costs Mexico around 1% of GDP. Taylor estimates violence costs Mexico about 22% of GDP based on the IEP data, which she thinks is a conservative estimate. Mexico is on track to notch a record number of murders this year, for the second year in a row, and the violence is spreading even to tourist destinations. Taylor founded research firm Tourmaline Group earlier this year to provide investors and policy makers with analysis “about
issues that are hurting living standards in emerging economies.”
To contact the reporter on this story:
Michael O’Boyle in Mexico City at moboyle7@bloomberg.net
To contact the editors responsible for this story:
Brad Olesen at bolesen3@bloomberg.net
Dale Quinn