Great expectations: reform lag tempers Mexican hope for growth

lunes 17 de marzo de 2014 09:00 GYT

By Alexandra Alper and Luis Rojas

MEXICO CITY, March 17 (Reuters) - After a rush of euphoria triggered by the promise of sweeping reforms to boost the Mexican economy, growth is failing to live up to expectations and small business owners like Enrique Paz are feeling the pinch.

A series of tax increases and a roll-back in fuel subsidies is denting consumption and it will likely be 2015 at the earliest before the economy starts to feel any boost from a landmark opening of the state-controlled energy sector.

Wrap in wobbly demand from top trade partner the United States and a flagging construction sector, and the Mexican government's 3.9 percent growth target for Latin America's second-biggest economy looks increasingly unrealistic.

The market is already dialing back estimates, with analysts polled by the central bank forecasting 3.2 percent growth.

"There are taxes on top of taxes. Buying power is down. The people don't have money to spend," said Paz, 44, who says sales at his kiosk in downtown Mexico City have fallen 40 percent as new levies forced him to raise prices on snacks and sodas.

President Enrique Pena Nieto forecasts his reform drive, which spans education to energy, will boost growth to around 5 to 6 percent. The policy overhaul has helped Mexico steal the limelight from the region's struggling No. 1 economy, Brazil.

But the government has so far failed to rev up growth, which averaged 2.4 percent in the decade before Pena Nieto took power in December 2012. The economy grew just 1.1 percent last year.

"The reforms have been oversold and on balance this year the effect ... will be neutral or slightly negative," said Rodolfo Navarrete, head of analysis at Vector, a brokerage that sees growth of just 2.3 percent this year.   Continuación...