II. Dynamics of Growth

In 1996, real GDP growth is expected to reach 3.7%, thus consolidating the economic recovery that started in Q3 1995. Correspondingly, 1997 will unfold as a year of economic transition.


Next year, economic policy will be geared towards setting the economy on a higher growth path by establishing the conditions to achieve our medium-term growth target of more than 5% in 1998 and thereafter.


For 1997, a positive outlook for productive investment and other components of aggregate demand leads to foresee a real GDP growth rate of 4%.

Why is the target of 4% real growth attainable?

Realistic and conservative assumptions underlie the growth forecast for 1997:

1. External sector: Higher profitability in the export sector and a positive growth outlook for major trading partners will continue to boost a dynamic external sector. In 1997, manufacturing exports are expected to grow 16.0% in dollar terms, without taking into account maquila exports 1/.


2. Investment: The public sector will increase investment through both on-budget projects as well as privately financed off-budget projects. Thus, public and private investment are expected to increase 6.6% and 14.4% in real terms respectively, thus providing a major stimulus for growth in 1997. Total investment induced by the public sector will amount to 4.0% of GDP.

3. Consumption: The recovery in employment levels and a gradual improvement of real wages will lead to higher levels of private consumption, which is expected to increase 2.4% in real terms next year. In addition, improving debtors’ conditions as a result of government support programs will further encourage a pick-up in consumption.

Contributions to GDP growth*

 

1995

1996 e

1997 p

1. External Sector

8.92

-0.97

0.10

2. Investment

-5.61

1.21

1.91

3. Consumption

-5.68

1.60

1.78

4. Variation in stocks

-3.83

1.85

0.22

GDP Growth

-6.20

3.70

4.00

*/ Numbers may not sum due to rounding.
See Appendix B
e/ Estimate
p/ Projection

Although the contribution of net exports has declined since 1995, the export sector keeps providing the main boost to growth. In particular, investment in the tradeable goods sector has been increasing rapidly, and employment in that sector has shown the most significant improvement. Therefore, it is expected that the export sector will continue to lead the recovery through a positive effect on investment and employment.

1/ It is important to note that while this growth rates are lower when compared to 1996 rates, the base is currently larger. That is, while exports in 1994 accounted for 17.1% of GDP, in 1996 exports as a percentage of GDP are expected to reach 27.6%

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