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Mexico, located in the South of the United States, has a per capita GDP of over $10,000 which places it just a step away from high-income countries. The country’s over 130 million population, growing healthy labor force, gradually decreasing dependency ratio, and close trade relations with the international community all make Mexico a country with great economic potential.
However, Mexico’s development has not been as smooth as expected. Although it now has a per capita GDP close to China, it was about 20 times that of China 40 years ago (1981). A series of financial, fiscal, and foreign exchange crises have hindered overall economic development and made its growth less robust than many developing countries.
During 1982, many South and Central American countries (Brazil, Argentina, and Mexico) accelerated their industrialization by borrowing high proportions of money, as well as making investments in corresponding infrastructure. However, Mexico’s debt at the time was secured by future oil revenues, so as oil prices gradually decreased in the early 80s, the Mexican economy collapsed and became the first sovereign default in South and Central America.
Since then, Mexico has focused on domestic economic reforms, such as implementing fiscal tightening policies, privatizing many state-owned enterprises, and opening up to foreign investment while reducing trade protection. This series of policies has gradually stabilized the Mexican economy, which has begun to grow, but another crisis has begun to emerge.
In the process of opening up the economy and privatizing the market, Mexico has experienced a lack of regulation of financial companies and a lack of foreign exchange control, resulting in many foreign investments withdrawing and the peso collapsing. The so-called tequila crisis (which later involved the entire South and Central America) followed. The subsequent US $52 billion rescue plan prevented the Mexican economy from collapsing.
In the past two decades, Mexico has also experienced the 2008 financial crisis and the 2020 global pandemic, but in both of these cases, Mexico quickly regained its footing. Although it suffered an economic contraction of -8.2% in the 2020 financial crisis, its economy returned to its growth trajectory after 2023.
However, Mexico’s economy still remains unpredictable. The country’s future development will depend on factors such as the spread of infrastructure, the penetration of finance, the prevalence of education and health, and the long-term technological investment of many businesses.
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
The economic growth in Mexico is expected to be weak throughout the coming few years. This is due to the incomplete recovery from the Covid-19 pandemic, external challenges in the short term, and long-term structural limitations. Real GDP growth is expected to slow down to 1.7% in 2023 from an estimated 3.5% in 2022. The short-term outlook is pessimistic due to a lack of fiscal support for consumers and businesses, strong inflationary pressures, monetary policy tightening, the impending technical recession in the US, and the effects of the Russia-Ukraine war on global supply chains.
In the medium term, weak public investment and high poverty levels are expected to limit growth to an average of 2% per year in years after 2023. President López Obrador’s rollback of structural reforms in education and energy on ideological grounds is expected to harm medium and long-term growth. Reforms in banking and telecoms remain intact, but inefficiencies in implementation have prevented them from reaching their full potential.
Export-oriented manufacturing is expected to remain one of Mexico’s most dynamic sectors, supported by a skilled workforce, deep integration into US value chains, and low wages. The mining and energy sectors will benefit from high commodity prices, but low investment will limit the gains. The services sector is expected to perform weakly due to weak competition and regulation, although some emerging sectors, such as fintech, are showing greater potential.
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
The working-age population is expected to grow slightly faster than the overall population until 2030, but the pace will slow down after that. Currently, about 25% of the population is 14 years old or younger, but the ratio of young dependents will decrease in the long term as fertility rates decrease and population growth slows. This will be exacerbated by a rising ratio of elderly dependents. Despite an aging population, the net dependency ratio will continue to fall until 2030, according to projection by the UN, yet Mexico will still be low compared to OECD levels in 2050, which provides significant demographic benefits. However, there is a risk that future governments may not take advantage of these benefits due to poor economic and social policies.
Structural reforms and investments are needed to modernize the production sector and establish a universal social security system to improve health outcomes and support the safety net. An inefficient education system will limit the overall quality of the workforce and widen the persistent skills gap. In the long term, the aging population and the decline in working-age population growth will put pressure on the public finances and social security system, especially if public revenue remains far below OECD averages
Mestizo (Amerindian-Spanish) 62%, predominantly Amerindian 21%, Amerindian 7%, other 10% (mostly European) (2012 est. by CIA)
Spanish only 93.8%, Spanish and indigenous languages 5.4%, indigenous only 0.6%, unspecified 0.2%
Roman Catholic 78%, Protestant/evangelical Christian 11.2%, other 0.002%, unaffiliated (includes atheism) 10.6% (2020 est. by CIA)
Mexico was ruled by the Partido Revolucionario Institucional (PRI) from 1929 to 2000, moving from a nationalist and interventionist approach to a free-market and economically liberal approach. In 2000, the centre-right Partido Acción Nacional (PAN) won the presidency, representing a shift to democratic pluralism, but a divided legislature and slow progress in structural reforms hampered political effectiveness. Sluggish growth and rising violent crime led to the PRI’s return to power in 2012. However, persistent domestic discontent resulted in a historic election win for the left-wing Andrés Manuel López Obrador in 2018.
The Mexican political system is presidential, bicameral, and federal, consisting of 31 states and a federal entity covering the capital city, Mexico City. Presidential terms are for six years with no possibility of re-election. During the transition to democratic pluralism, political power has shifted from the executive to the legislature and local governments. Reforms in 2013 allowed for the re-election of legislators and mayors, and established a single electoral institute to improve political effectiveness and reduce election irregularities. In 2018, presidential candidates were allowed to run as independents, but their impact was limited. López Obrador has a tendency to put major policy decisions to public consultations outside of legal channels.
Conservative fiscal and monetary policies support macroeconomic stability, but weak non-oil revenue and shallow credit markets limit policymakers’ ability to boost demand. Previous governments implemented structural reforms in 2013 in energy, education, and telecommunications. López Obrador reversed the education reform by eliminating teachers’ evaluations and attempted to undermine the energy reform, but the loss of a congressional supermajority in the June 2021 mid-term elections limited his efforts. Growth is hindered by a lack of internal competition, a deficient education system, institutional flaws fostering corruption, and high crime levels.
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