Economy of Mexico

Economy of Mexico
Ciudad.de.Mexico.City.Distrito.Federal.DF.Paseo.Reforma.Skyline.jpg
Mexico City is the financial center of Mexico
CurrencyMexican peso (MXN$) = 0.053 USD
1 January – 31 December
Trade organizations
APEC, NAFTA, OECD and WTO
Statistics
GDP$1.149 trillion (nominal; 2017)[1]
$2.458 trillion (PPP; 2017)[1]
GDP rank
GDP growth
3.3% (2015), 2.9% (2016),
2.0% (2017e), 2.3% (2018f) [2]
GDP per capita
$9,304 (nominal; 2017)[1]
$19,480 (PPP; 2017)[1]
GDP per capita rank
GDP by sector
agriculture: 3.6%, industry: 36.6%, services: 59.8% (2013 est.)[3]
Positive decrease 2.5% (2015 est.)
Population below poverty line
42.3% (2017)[4][5]
Positive decrease 53.6 (2017) [6]
Labor force
53 million (2015 est.)
Labor force by occupation
agriculture: 13.4%, industry: 24.1%, services: 61.9% (2011)
UnemploymentPositive decrease 3.44% (2017)
Main industries
Decrease 49th (2018)[7]
External
Exports$406.5 billion (2017 est.)[8]
Export goods
automobiles, electronics, televisions, computers, mobile phones, LCDs, oil and oil products, silver, fruits, vegetables, coffee, cotton.
Main export partners
 United States 80.3%
 Canada 2.7%
 China 1.5%
 Spain 1.5%
 Brazil 1.2% (2014 est.)[9]
Imports$417.3 billion (2017 est.)[8]
Import goods
metalworking machines, steel mill products, agricultural machinery, metals, repair parts for motor vehicles, aircraft, and aircraft parts, oil production equipment
Main import partners
 United States 49.0%
 China 16.6%
 Japan 4.4%
 Germany 3.4%
 South Korea 3.4% (2014 est.)[9]
Public finances
$341 billion (2010)[10] / 47.9% of GDP (2016 est.)
Revenues$234.3 billion (2010 est.)[10]
Expenses$263.8 billion (2010 est.)[10]
Economic aid$189.4 million (2008)
Foreign reserves
$179.314 billion (January 2018)[13]
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.

The economy of Mexico is the 15th largest in the world in nominal terms and the 11th largest by purchasing power parity, according to the International Monetary Fund.[14]Since the 1994 crisis, administrations have improved the country's macroeconomic fundamentals. Mexico was not significantly influenced by the 2002 South American crisis, and maintained positive, although low, rates of growth after a brief period of stagnation in 2001. However, Mexico was one of the Latin American nations most affected by the 2008 recession with its Gross Domestic Product contracting by more than 6% in that year.

The Mexican economy has had an unprecedented macroeconomic stability, which has reduced inflation and interest rates to record lows and has increased per capita income. In spite of this, enormous gaps remain between the urban and the rural population, the northern and southern states, and the rich and the poor.[15] Some of the unresolved issues include the upgrade of infrastructure, the modernization of the tax system and labor laws, and the reduction of income inequality. Tax revenues, all together 19.6 percent of GDP in 2013, are the lowest among the 34 OECD countries.[16]

The economy contains rapidly developing modern industrial and service sectors, with increasing private ownership. Recent administrations have expanded competition in ports, railroads, telecommunications, electricity generation, natural gas distribution and airports, with the aim of upgrading infrastructure. As an export-oriented economy, more than 90% of Mexican trade is under free trade agreements (FTAs) with more than 40 countries, including the European Union, Japan, Israel, and much of Central and South America. The most influential FTA is the North American Free Trade Agreement (NAFTA), which came into effect in 1994, and was signed in 1992 by the governments of the United States, Canada and Mexico. In 2006, trade with Mexico's two northern partners accounted for almost 90% of its exports and 55% of its imports.[17] Recently, the Congress of the Union approved important tax, pension and judicial reforms, and reform to the oil industry is currently being debated. Mexico had 15 companies in the Forbes Global 2000 list of the world's largest companies in 2016.[18]

Mexico's labor force is 52.8 million as of 2015.[19] The OECD and WTO both rank Mexican workers as the hardest-working in the world in terms of the amount of hours worked yearly, although profitability per man-hour remains low.[20][21][22][23][24]

History

Porfirio Díaz, (1876–1911) in whose presidency rapid industrialization took place in foreign capital.

Mexican president Porfirio Díaz brought unprecedented economic growth during the last quarter of the nineteenth century. This growth was accompanied by foreign investment and European immigration, the development of an efficient railroad network and the exploitation of the country's natural resources. Annual economic growth between 1876 and 1910 averaged 3.3%.[25]

Political repression and fraud, as well as huge income (in)equalities exacerbated by the land distribution system based on latifundios, in which large haciendas were owned by a few but worked by millions of underpaid peasants living in precarious conditions, led to the Mexican Revolution (1910–1920), an armed conflict that drastically transformed Mexico's political, social, cultural, and economical structure during the twentieth century under a premise of social democracy. The war itself left a harsh toll on the economy and population, which decreased over the 11-year period between 1910 and 1921.[citation needed] The reconstruction of the country was to take place in the following decades.

The period from 1930 to 1970 was dubbed by economic historians as the Mexican Miracle, a period of economic growth that followed the end of the Mexican Revolution and the resumption of capital accumulation during peacetime. During this period the nation adopted the economic model of import substitution industrialization (ISI) which protected and promoted the development of national industries. Mexico experienced an economic boom through which industries rapidly expanded their production.[26] Important changes in the economic structure included free land distribution to peasants under the concept of ejido, the nationalization of the oil and railroad companies, the introduction of social rights into the constitution, the birth of large and influential labor unions, and the upgrading of infrastructure. While population doubled from 1940 to 1970, GDP increased sixfold during the same period.[27]

President José López Portillo 1976-1982, during whose administration the economy soared with the discovery of oil and then crashed when the price dropped.

Growth while under the ISI model had reached its peak in the late 1960s. During the 1970s, the presidential administrations of Echeverría (1970–76) and López Portillo (1976–82), tried to include social development in their policies, an effort that entailed more public spending. With the discovery of vast oil fields in a time in which oil prices were surging and international interest rates were low -and even negative- the government decided to borrow from international capital markets to invest in the state-owned oil company, which in turn seemed to provide a long-run income source to promote social welfare. This method produced a remarkable growth in public expenditure,[26] and president López Portillo announced that the time had come to "manage prosperity"[28] as Mexico multiplied its oil production to become the world's fourth largest exporter.[29]

Average annual GDP growth by period
1900–1929 3.4%
1929–1945 4.2%
1945–1972 6.5%
1972–1981 5.5%
1981–1995 1.5%
1983 Debt Crisis -4.2%
1995 Peso Crisis -6.2%
1995–2000 5.1%
2001 US Recession -0.2%
2009 Great Recession -6.5%
Sources:[30][26][31][32]

In the period of 1981–1982 the international panorama changed abruptly: oil prices plunged and interest rates rose. In 1982, President López Portillo, (1976–82) just before ending his administration, suspended payments of foreign debt, devalued the peso and nationalized the banking system, along with many other industries that were severely affected by the crisis, among them the steel industry. While import substitution had been in use during an era of industrialization, by the 1980s it was evident that the protracted protection had produced an uncompetitive industrial sector with low productivity gains.[26]

President de la Madrid (1982–88) was the first of a series of presidents that began to implement neoliberal reforms. After the crisis of 1982, lenders were unwilling to return to Mexico and, in order to keep the current account in balance, the government resorted to currency devaluations, which in turn sparked unprecedented inflation,[26] which reached a historic high in 1987 at 139.7%.[33]

The first step toward the liberalization of trade was Mexico's signature of the General Agreement on Tariffs and Trade (GATT) in 1986 under President de la Madrid. During the Salinas administration (1988–94) many state-owned companies were privatized. The telephone company Telmex, a government monopoly, became a private monopoly,[34] sold to Carlos Slim. Also not opened to private investors were the government oil company Pemex or the energy sector. Furthermore, the banking system that had been nationalized in the waning hours of the López Portillo administration in 1982 were privatized, but with the exclusion of foreign banks.[35] Salinas pushed for Mexico's inclusion in the North American Free Trade Agreement, expanding it from a U.S.-Canada agreement. The expanded NAFTA was signed in 1992, after the signature of two additional supplements on environments and labor standards, it came into effect on January 1, 1994.

Salinas also introduced strict price controls and negotiated smaller minimum wage increments with the labor union movement under the aging Fidel Velázquez with the aim of curbing inflation.[36] While his strategy was successful in reducing inflation, growth averaged only 2.8 percent a year.[26] By fixing the exchange rate, the peso became rapidly overvalued while consumer spending increased, causing the current account deficit to reach 7% of GDP in 1994. The deficit was financed through tesobonos a type of public debt instrument that reassured payment in dollars.[37]

The January 1994 Chiapas uprising, and the assassinations of the ruling party's presidential candidate in March 1994, Luis Donaldo Colosio and the Secretary-General of the party and brother of the Assistant-Attorney General José Francisco Ruiz Massieu in 1994, sent a disquieting message to investors. Public debt holders rapidly sold their tesobonos, depleting the Central Bank's reserves,[37] while portfolio investments, which had made up 90% of total investment flows, left the country as fast as they had come in.[26]

This unsustainable situation eventually forced the entrant Zedillo administration to abandon the fixed exchange rate. The peso sharply devalued and the country entered into an economic crisis in December 1994.[38] The boom in exports, as well as an international rescue package crafted by U.S. president Bill Clinton (1993-2001), helped cushion the crisis. In less than 18 months, the economy was growing again, and annual rate growth averaged 5.1 percent between 1995 and 2000.[26] More critical interpretations argue that the crisis and subsequent public bailout "preserved, renewed, and intensified the structurally unequal social relations of power and class characteristic of finance-led neoliberal capitalism" in forms institutionally specific to Mexican society.[38]

President Zedillo (1994–2000) and President Fox (2000–06), of the National Action Party (Mexico), the first opposition party candidate to win a presidential election since the founding of the precursor of the Institutional Revolutionary Party in 1929, continued with trade liberalization. During Fox's administrations, several FTAs were signed with Latin American and European countries, Japan and Israel, and both strove to maintain macroeconomic stability. Thus, Mexico became one of the most open countries in the world to trade, and the economic base shifted accordingly. Total trade with the United States and Canada tripled, and total exports and imports almost quadrupled between 1991 and 2003.[39] The nature of foreign investment also changed with a greater share of foreign-direct investment (FDI) over portfolio investment.