INTERVIEW-OECD sees weaker Mexican growth, says reforms positive

Alexandra Alper and Lomi Kriel
Saturday, 19 Oct 2013 | 2:43 PM ET

PANAMA CITY, Oct 19 (Reuters) - Mexican growth is likely to prove weaker than previously expected in 2014 after an "anemic" performance this year, the head of the Organisation for Economic Co-operation and Development said on Saturday.

OECD Secretary-General Jose Angel Gurria said that despite progress on pushing through economic reforms in Congress, growth in Latin America's second biggest economy would next year prove slower than the Paris-based organization had earlier forecast.

"For (this) year (Mexico) will grow between 1-1/2 and 2 percent. Next year they will be between 2 and 3 percent," Gurria told Reuters in an interview in Panama City.

In May, the OECD had forecast 3.4 percent growth for 2013, and 3.7 percent for 2014.

Mexico scaled back its own 2013 growth forecast after dual storms laid waste to farmland last month and the economy contracted in the second quarter for the first time in four years as construction and government spending sagged.

The finance ministry now sees growth of around 1.7 percent this year.

"The year of 2013 will be anemic," Gurria said.

The International Monetary Fund slashed its 2013 growth outlook for Mexico this month, forecasting the economy would expand by just 1.2 percent this year, down from a 2.9 percent expansion it forecast in July.

Gurria said Mexican lawmakers should be proud of President Enrique Pena Nieto's ambitious reform agenda, including planned measures to boost the country's weak tax take and increase production at ailing oil giant Pemex.

The lower house approved revised tax reform legislation on Friday, raising the top income-tax rates and rolling back plans to apply sales tax to rents, mortgages, property sales and school fees. It must now pass through the Senate. The energy reform is still pending.

"These guys could hang their hat ... just on that," said the former Mexican finance minister. "We've been waiting 30-40 years for these things to happen."

Many, including the OECD, had advised Mexico to gradually remove a sales tax exemption on food and medicine purchases, but the government chose to dodge the political hot potato.

"They did a lot of stuff. What they did not do was deal with the food and medicine and I attribute that to politics," said Gurria.

Mexico's leftist Party of the Democratic Revolution views the exemption as key to safeguarding the country's poor.

A government proposal to open the oil sector to private investment, which would allow private companies to team up with Pemex and share in profits but not production or receive full-on concessions, was as much a change as was politically feasible, Gurria said.

"It's the best reform possible at this stage," he said. "(Mexicans) all have a little bit of oil circulating in our veins so it has to be dealt with carefully."

Mexico nationalized its oil industry in 1938 and state dominion over oil rights has become firmly ingrained in the national psyche.

(Reporting by Lomi Kriel and Alexandra Alper; Editing by Simon Gardner and Eric Beech)