Football and Economics Mexico 4 - 2 Brazil

Aug 11th 2012, 20:41 by T.W. | MEXICO CITY The Economist http://www.economist.com/blogs/americasview/2012/08/football-and-economics

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CONGRATULATIONS are due to Mexico, which on August 11th won its first gold medal in the London Olympics, beating Brazil in the men's football final. After 93 frantic minutes, the final score was 2-1 to Mexico. Mass celebrations followed in Mexico City.

This blog’s headline isn't a misprint, but a reference to the score in a longer-term competition: economic growth. In recent years Brazil has outplayed Mexico, growing at 6% or more as Mexico bumped along in the slow lane. But lately that has changed. Last year Mexico grew by 4% and Brazil by 2.7%. This year Mexico is expected to get close to 4% again, whereas some economists reckon that Brazil's rate could dip below 2%. A recent report by Nomura predicted that Mexico’s economy, currently half the size of Brazil’s, could end up the bigger of the two within the next decade.

One reason for the turnaround is China. Its growth has been a boon to Brazilian commodity exporters (who have made a fortune feeding the Chinese economy) and a headache for Mexican manufacturers (who face stiffer competition from Chinese companies in the United States). But with China slowing down, the tables are turned. Demand for Brazilian commodities is cooling, and Mexico is regaining an edge in its main market. The gradual recovery of the American economy will help Mexico further.

Mexico has a few other tricks up its sleeve. One is credit: the ratio of bank debt to GDP in Mexico is barely a third what it is in Brazil. This gives Mexico a powerful opportunity to grow if it can turn the taps on. Another is demography: Mexico is about to begin a couple of decades where the ratio of workers to dependants is especially favourable. Finally, and least predictably, there are the countries’ governments. Enrique Peña Nieto, who will take over as Mexico’s president on December 1st, has promised reforms that ought to spur Mexico’s growth if they are implemented, which is not guaranteed. Mexico is already more committed to free trade than Brazil, as a recent spat over the car industry showed.

Predicting economic fortunes is not much more certain than predicting football results. But it may be that Mexico’s Olympic victory over Brazil was just a warm-up for more good results to come.