Mexico flag Mexico: Economic and Political Overview

The economic context of Mexico

Economic Indicators

Mexico is among the world's 15 largest economies and is the second-largest economy in Latin America. The country is highly dependent on the United States, its main trading partner and destination of nearly 80% of its exports. According to the IMF, GDP grew by an estimated 3.2% in 2023, driven by a robust services sector (particularly in retail), a resilient job market, inflows of remittances from expatriates in the U.S., and an increasing wage bill. The IMF outlook anticipates a 2.1% expansion this year and a 1.5% growth in 2025. Private consumption is expected to play a pivotal role, buoyed by low unemployment and rising real wages. Private investment is poised to see gradual improvement due to the shift of manufacturing activity to Mexico. Although exports may be hampered by slower growth in major trading partners, the economy stands to gain from its deep integration in manufacturing value chains and the trend of nearshoring.

In 2023, the Mexican government maintained a prudent fiscal policy, with the budget deficit remaining unchanged from the previous year, at 4.2% of GDP, despite heightened interest payments, augmented allocations for priority programs, and a decrease in revenue from oil taxes. The IMF expects the deficit to increase to 5.8% in 2024, attributed to heightened budget allocations for social expenditures, notably in universal non-contributory pensions, and substantial investments in key infrastructure projects in the southern region. The wider deficit should contribute to an increase in general government debt to GDP to 54.7% in 2024 from 52.7% last year, also due to high real interest rates and a procyclical policy stance. Headline inflation has continued to decline throughout 2023, averaging 5.5%, albeit with particularly high pressures in services. Both annual headline and core inflation are projected to gradually decrease and are anticipated to reach the 3% target by the end of 2025.

The labour market has been recovering since the pandemic. In 2023, Mexico's unemployment rate declined to 2.9% but it is expected to increase to 3.1% this year and to 3.4% in 2025 (IMF). To date, the informal sector is still estimated to involve around 60% of employment (OCSE). Key challenges which remain to be tackled include high dependence on the U.S. economy, high and rising criminality rates, income inequality, weakening infrastructure and education, and decades of underinvestment in the oil sector.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 1,465.851,811.471,994.152,081.182,171.30
GDP (Constant Prices, Annual % Change) 3.93.22.11.51.8
GDP per Capita (USD) 11,26613,80415,07215,60716,160
General Government Balance (in % of GDP) -4.2-4.2-5.8-2.8-2.8
General Government Gross Debt (in % of GDP) 54.152.754.755.155.5
Inflation Rate (%) n/a5.53.83.13.0
Unemployment Rate (% of the Labour Force) 3.32.93.13.43.6
Current Account (billions USD) -18.05-26.62-28.54-23.57-18.89
Current Account (in % of GDP) -1.2-1.5-1.4-1.1-0.9

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Mexico's economy is diversified, including hi-tech industries, oil production, mineral exploitation, and manufacturing. According to the latest data from the World Bank, agriculture accounts for 4% of Mexico’s GDP and employs 12% of the country’s active population. Mexico is the world's seventh agricultural power and ranks among the world's largest producers of coffee, sugar, corn, oranges, avocados and limes. Cattle farming and fishing are also important activities in the food industry. Mexico is also the world's fourth-largest producer of beer and its largest exporter. The agricultural sector suffers from occasional droughts (2023 being the dryest year since 1957) and other issues related to climate.

The industry employs 26% of the Mexican workforce and represents 33.6% of GDP, according to the World Bank. Mexico is among the world's leading producers of many minerals, including silver, fluorite, zinc and mercury. Moreover, oil and gas reserves are one of the country’s most precious possessions. The aerospace sector has grown sharply, thanks to the development of a cluster in Queretaro and the presence of nearly 190 companies, including Bombardier, Goodrich, the Safran group and Honeywell, which together employ 30,000 people. Mexico is also one of the world's ten largest car producers and due to significant real estate investments, the construction sector is dynamic. The manufacturing sector alone is estimated to account for 21% of GDP. According to official figures, industrial production grew by 3.9% year-on-year in the first ten months of 2023.

The service sector constitutes 57.6% of GDP and employs 62% of the workforce. The hi-tech, information, and software development sectors are experiencing a real momentum, driven by the quality of the workforce, clusters and low operating costs that favour the creation of call centres. Medical services and tourism have been growing steadily for the past few years, mainly due to lower service costs than in other Western countries. Although the services sector was hit the hardest during the pandemic, it showed a significant recovery in the past couple of years. Tourism is a vital sector for the Mexican economy, with the number of foreign visitors increasing by 11% up to October 2023 in comparison to the preceding year (data INEGI). In 2022 as a whole, the tourist GDP reported a total of MXN 2,372,556 million, equivalent to 8.5% of the national GDP.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 12.3 25.6 62.0
Value Added (in % of GDP) 4.1 32.1 58.8
Value Added (Annual % Change) 2.8 3.3 2.8

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
65,5/100
World Rank:
65
Regional Rank:
11

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
6.36/10
World Rank:
43/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Sources of General Economic Information

Ministries
List of government agencies and ministries
Ministry of Foreign Relations
Ministry of Welfare
Ministry of Energy
Ministry of Agrarian, Land, and Urban Development
Ministry of Agriculture and Rural Development
Statistical Office
National Institute of Statistics and Geography
Central Bank
Bank of Mexico
Stock Exchange
Mexican Stock Exchange
Economic Portals
Trade in Mexico
 

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Latest Update: February 2024