Mexico’s economy is experiencing a pronounced slowdown across the economy, with both industrial production and consumer spending seeing more moderate growth compared to 2012. However, FSG expects growth will accelerate in the second half of 2013 as the new government’s spending plans ramp up and the US economy experiences faster growth after the one-off effects of tax increases and spending cuts work their way through the economy.

Mexico’s near-term slowdown is largely driven by short-term external factors that will lose relevance in the second half of 2013. As long as the Mexican government’s agenda remains tilted toward reform and economic growth in the United States improves, Mexico is likely to accelerate in the second half of 2013 and beyond. On the other hand, a breakdown of the reform agenda may have deleterious effects on the country’s economy over the medium term, particularly if essential fiscal and energy reforms do not pass over the next twelve months.

FSG clients have on the whole suffered tepid sales growth in the first quarter of 2013 in Mexico, as slower consumer spending, weak industrial production, and reduced government spending weigh down revenue growth. This has not translated into a reduction in interest in increasing investments in Mexico, though multinationals are increasingly cognizant of the fact that it will take time for the upside potential associated with Peña Nieto’s reform agenda to translate into real economic growth.

Trend #1: Policy Shift Toward Urbanization Is Creating Both Opportunities and Turmoil

• Financial turbulence in the housing sector has led the government to partially bail out the major builders, and will lead to weaker overall growth of the sector. Multinationals that have builders as clients will have to reorient toward the smaller, emerging players in the industry that are better prepared for the shifting market landscape. B2C companies should expect that accelerating urbanization will make it easier for them to reach consumers, and should adapt their marketing efforts to the changing living patterns of Mexican consumers.

Trend #2: Telecommunications Reform Will Create New Opportunities for Multinationals

• The gains for the economy from increased competition in the telecom sector would be widespread, but the success of the reform will require secondary reforms to be passed over the next few months, as well as the requisite votes in the state congresses. Even if the reforms only open up the two sectors to competition from the local giants in practice, this will still lead to higher mobile and broadband penetration, and lower advertising costs for companies due to increased competition among cable and broadband providers. If the reforms and their subsequent implementation attract foreign players to the telecom market in Mexico, this will lead to even more dynamism for the industry and consumers.

Trend #3: Industry Efforts to Increase Credit Are Falling Short, but Reforms May Help

• While private sector initiatives from Walmart and Santander’s alliance with Oxxo may have increased access to financial services among Mexico’s emerging middle class, this has not led to a notable increase in credit growth. In response, the Peña Nieto administration has already begun pushing for improvement in the provision of credit to consumers through a significant financial reform project that would create two state credit bureaus. This would add to the information provided by commercial banks, public lenders, and other entities, and thus reduce the information deficit that is hobbling credit provision.