Population 114.872 million
GDP 1162.891 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
| GDP growth (%) |
5.6 |
3.9 |
3.9 |
3.6 |
| Inflation (yearly average) (%) |
4.2 |
3.4 |
4.1 |
3.9 |
| Budget balance (% GDP) |
-4.3 |
-3.4 |
-2.9 |
-2.3 |
| Current account balance (% GDP) |
-0.4 |
-1 |
-0.9 |
-1.1 |
| Public debt (% GDP) |
42.9 |
43.8 |
43.1 |
43.2 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Vast market (112 million inhabitants)
- Membership of NAFTA, the OECD and the G20
- IMF credit line until January 2015
- Geographic proximity to the USA
- Important industrial base
- World players in cement, beer, telephony
- Public finances under control
- Low external debt
WEAKNESSES
- Dependence on the USA
- Public finances vulnerable to oil resources
- Deficiencies in infrastructures, education, research and justice
- Huge informal economy: a third of activity and 40% of workers
- Poor development of business credit
- High crime level linked to drug trafficking
- Continuing high level of poverty and inequality
Risk assessment
Activity closely linked to that of the United States
Growth is expected to remain close to its potential in 2013, with activity again sustained by domestic demand. Consumption will benefit from a healthy labour market, credit growth and the moderation of food and energy prices. Business investment is expected to reflect high capacity utilisation rates, which are anticipated to be boosted further by American demand. The United States is by far the most important export destination (80% of the total, or 25% of GDP). Mexican industrial production is closely correlated to the economic activity of its neighbour, particularly through assembly work.
Public accounts dependent on oil revenues
Reduction of the public deficit will continue, which should be enough to stabilise the debt, of which the external portion (44%), denominated in foreign currency (23%) is trending downwards as peso-denominated bonds issuance increase. Further deficit reduction, without reducing the already low share of spending on investment, would require public revenue to be increased. Fiscal revenue represents only 23% of GDP, 15% without oil. The weakness of fiscal revenue is problematic in two respects: on the one hand, excluding oil revenues the deficit stands at 8% of GDP, while on the other hand, oil revenues could stagnate because of the erosion of Mexican production observed over the past 7 years. The national oil company, PEMEX has held a monopoly in exploration through to production since 1938, but does not have enough technical resources to develop the exploration of new deep-water fields in the Mexican Gulf, while the older fields are becoming exhausted. A large proportion (35%) of PEMEX’s profits are, moreover, taken by the state, so that it has to borrow in order to invest. Half of public external debt is due to PEMEX. The use of foreign companies, authorised since 2011 in a framework of service contracts for exploration and, if need be, for the exploitation of new fields is recent.
USA market share gains for manufacturing exports
Trade is in balance. Strong domestic demand has led to high import flows, but the peso’s exchange rate, which floats fairly freely though on a long-term slight devaluation trend against the dollar, is favourable to exports. Raw materials represent 22% of exports (oil 16%, gold and silver 4%). Oil trading is slightly in surplus, as inadequate refining capacity means there is a need for substantial petrol imports. Half of manufacturing exports come from the assembly of imported components in the maquiladoras, factories established in the free-trade areas near the American border - the car industry (5% of GDP, 15% of industrial production and 20% of exports) being a perfect illustration. The same applies to household appliances, telecommunications and electronics. Their share of the American market has grown to 15%, while the share of Chinese products has fallen, doubtless due to a rebalancing of labour and transport costs. Emigrants’ transfers and tourism income from the United States do not compensate for the dividend repatriations by foreign companies, interest payments to foreign lenders or freight and insurance costs linked to trade in goods. Foreign investments easily cover the slight current account deficit and the amortisation of external debt, the outstanding balance of which is low (27% of GDP).
Challenges for the new administration
Relations between Mexico and the United States are sometimes antagonistic concerning immigration, the status of illegal Mexican residents, trafficking of drugs, of arms (to the south), of oil (to the north), border control measures and hydrocarbon operations in the Gulf. Organised crime fosters corruption of the forces of law and order, particularly in the federated states of the north. The effectiveness of the law is sometimes marred by corruption and the fear of reprisals. The success of Enrique Peña Nieto, whose presidential term began in December 2012, particularly against drug trafficking and against the cartels, is not guaranteed as his party, the PRI, already in power from 1929 to 2000, does not have a majority in the congress and is largely subject to local influences. The formation of circumstantial majorities is difficult because the parties exercise close control over their elected members, who can serve only one term and depend on their leadership to find a new constituency.
