Overview of Mexico’s economy
According to 2017 data from the International Monetary Fund, Mexico is the world’s 15th-largest economy based on nominal gross domestic product (GDP), which evaluates market prices, and the 11th largest based on purchasing power parity (PPP), which compares the prices of like consumer goods among countries.
With a population of 123 million, Mexico has the second-highest gross national income in Latin America after Brazil.
What should I know about nominal GDP and PPP?Among the multiple ways that economists measure a country’s economic strength, nominal GDP and PPP are two of the most common.
Nominal GDP is based on official government estimates and depends on exchange rates between two countries, typically using the US dollar for one of the denominations. It’s useful for measuring financial flows between countries. But because it doesn’t consider differences in cost of living, it can distort per capita income estimates.
PPP, on the other hand, considers the relative cost of local goods, services and inflation rates — all factors considered to reflect a country’s domestic market. Because PPP compares the costs of a common “basket of goods” — some 3,000 consumer goods that include food, fuel and insurance — it’s considered a more ideal way to project per capita income projections and gauge poverty thresholds.
Mexico’s official currency is the Mexican peso (MXN$), which remains fairly stable since 2017. As of March 1, 2018, $18.83 MXN equals $1 USD.
Mexicans are ranked as the hardest workers in the world in terms of hours worked annually. However, income distribution remains highly unequal, with official 2013 government estimates revealing that 42% of the population live below the poverty line. The Mexican government uses a multidimensional method for determining this poverty line, considering not only income but also deficiencies in such social rights as education, nutrition or living standards.
Although Mexico’s 3.2% unemployment rate is the lowest among Organization of Economic Cooperation and Development (OECD) member countries, the underemployment rate is estimated at 25%. Underemployment measures how well an economy uses a work force’s skills and experience — for example, matching highly-skilled workers to high-paying jobs or keeping people who prefer full-time work out of part-time jobs.
Major contributors to the economy
Mexico is a member of the North American Free Trade Association (NAFTA), together with the US and Canada, its largest trading partners. The US accounted for more than 80% of Mexico’s exports and almost half of its imports from the US in 2014.
Although Mexico is the world’s ninth-largest oil producer, oil made up only 2% of the country’s GDP by 2014. Falling oil production and weak prices mean that the country must look to other sources to fuel economic growth.
Mexico’s major exports include motor vehicles, electronic equipment, heavy machinery, oil and medical and technical equipment. Its top imports include electronic equipment, heavy machinery, motor vehicles, oil and plastics.
Tourism is another major contributor to Mexico’s economy. The country is the second most visited country in the Americas after the US.
Remittances transferred by Mexicans abroad to families back home totaled nearly $25 billion in 2012. The majority of Mexicans who transfer money to friends and family back home are based in the US. The Mexican government is quick to support remittances from Mexican workers abroad. For example, it implements programs where, for every peso remitted, it spends an equivalent 2 pesos on public works.
The 2016 Forbes Global 2000 ranking of the world’s largest companies included 15 companies from Mexico.
Mexico’s GDP growth rate slowed in 2017, down 0.5 percentage points from the previous year. Mexico’s economic growth has averaged 2% annually since 2013.
The country’s heavy dependence on trade with the US has adversely affected its economy in the past, particularly when recessions hit the economy of its neighbor to the north. However, resilience isa hallmark of Mexico’s economy: It has rebounded from past economic recessions with relative ease. The country also enjoyed low inflation and interest rates in recent years.
Moreover, more than 40 countries have signed trade agreements with Mexico, resulting in a book of trade with these countries.
However, government corruption, the drug trade, plunging oil prices and income inequality remain major challenges. Policy tightening in the US may be a cause for concern as well, with the NAFTA agreement up for review in 2018.
The World Bank credits economic reforms initiated by the current president, Enrique Nieto, for Mexico’s strong economic fundamentals. However, much work remains, particularly in terms of poverty alleviation and bridging inequalities, including with respect to gender. The government’s commitment to economic reforms hopefully bodes well for Mexico in the years ahead.