America report (Mexico) 02.08.2021

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MEXICO

I. Economic situation & forecast

Mexico is one of the 15 largest economies in the world and the second largest economy in Latin America. The country is heavily dependent on the United States, its largest trading partner and the destination of nearly 80% of its exports. According to the IMF, GDP contracted by about -8.2% in 2020, due to the Covid-19 epidemic. However, the country is expected to recover in the coming years, as the IMF’s April 2021 forecast calls for 5% growth for 2021 and 3% for 2022, subject to the post-pandemic global economic recovery.

Main strengths : 

  • Geographic proximity to the U.S. economy
  • Membership of USMCA and many other agreements
  • Substantial industrial base
  • Free-floating exchange rate
  • Adequate foreign exchange reserves
  • Large population and relatively low labour cost

Main weaknesses : 

  • High dependence on the U.S. economy
  • High income disparities and rising criminality
  • High corruption level
  • Weaknesses in transport, health and education
  • Narrow tax base, with tax revenues representing 21% of GDP
  • Oil sector and PEMEX undermined by years of underinvestment
  • High informality in job market
  • Weak sovereign fund

II. Main economic sectors and employment

Mexico’s economy is diversified, including high-tech industries, oil production, mining and manufacturing. According to the latest World Bank data, agriculture accounted for 3.38% of Mexico’s GDP in 2019 and employed 12.4% of the country’s workforce in 2020. Mexico is the world’s seventh largest agricultural power and ranks among the world’s largest producers of coffee and sugar, corn, oranges, avocados and limes. Cattle raising and fishing are also important activities in the food industry. Mexico is the world’s fifth largest producer of beer and its largest exporter. Although the Covid-19 pandemic has created significant challenges, the agricultural sector has been one of Mexico’s most privileged sectors, as it has not been as deeply affected as others and has even experienced periods of slow growth.

Industry employs 26.1% of the working population and accounts for almost 30.88% of GDP, according to the World Bank. Mexico is one of the world’s leading producers of many minerals, including silver, fluorite, zinc and mercury. In addition, oil and gas reserves are among the country’s most valuable resources. The aerospace sector is growing rapidly, 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 employ 30,000 people. Mexico is also one of the world’s ten largest car manufacturers and the construction sector is dynamic thanks to significant real estate investments. In 2020, however, the manufacturing sector has been deeply affected by the pandemic, particularly the automotive, textile and beverage industries. Moreover, the services sector accounts for 59.87% of GDP and employs 61.37% of the working population.

III. Pandemic situation and vaccination policy

COVID-19 strongly affected the economy, leading it into a deep recession.

Recently, Mexico has recorded 35% more deaths due to Covid-19 than the figure announced by the government, the national statistics institute, said Thursday. « Mexico recorded 201,163 deaths due to Covid-19 in 2020, a figure higher than the 148,629 deaths confirmed by the Ministry of Health, » said Julio Santaella, president of the INEGI (the Mexican National institute of statistic).
During the last week reported, Mexico averaged about 1,008,656 doses administeredeach day. At that rate, it will take a further 26 days to administer enough doses for another 10% of the population.
Sources : 
– BNP Paribas, Trade Solutions : https://www.tradesolutions.bnpparibas.com/fr/explorer/mexique/apprehender-le-contexte-economique
– Reuters, Covid Tracker : https://graphics.reuters.com/world-coronavirus-tracker-and-maps/countries-and-territories/mexico/
– COFACE, Mexico : https://www.coface.com/Economic-Studies-and-Country-Risks/Mexico

 

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