When the financial crisis of 2008 began Mexico suffered the steepest recession of any country in the Americas, bar some of the smaller Caribbean countries. Its economy shrank by 6.1% in 2009. Between the third quarter of 2008 and the second quarter of 2009, 700,000 jobs were lost. In the ten years to 2010, income grew by just 0.6% a year, one of the lowest rates in the world.
The Mexican economy is full of potential, thanks to a number of bilateral agreements and the North American Free Trade Agreements; it trades with the US more that Argentina and Brazil combined, and more per person than China. The US market accounts for 80% of Mexico’s exports.
There may be a perception of bureaucracy in Mexico, however the World Bank ranks Mexico as the 6th easiest place in Latin America to do business, ahead of Argentina (22nd) and Brazil (26th). Registering a business in Mexico takes just nine days, in Argentina it takes 26 days. In Brazil companies spend 2,600 hours a year filling taxes, six times more than in Mexico.
These strengths have helped Mexico bounce back from the slump of 2008. Mexico’s real GDP grew by 4% in 2011 (5.5% in 2010), supported by strong manufacturing exports and domestic demand. The projections for 2012 are 3.6%, slightly behind Argentina at 4% and ahead of Brazil at 3%.
Expectations on inflation are well anchored, although this has increased slightly through 2012, due to food price shocks. Projected inflation for Mexico in 2012 is 3.6%, which is well below the projections of Argentina at 10.3% and Brazil at 5%.
Challenges On The Horizon
As the European crisis stills looms large over the globe, what impact will this continued crisis have over Latin America, and more specifically Mexico?
Europe accounts only for an average of 13% of Latin American exports, and of all the Latin American countries, Mexico will be least affected, since only 5.3% of its exports go to Europe. However, Latin American growth will slow down if the situation in Europe deteriorates further, dragging the world into another crisis.
Exports account for nearly one third of Mexico’s trillion-dollar GDP, and 80% of these exports go to the US, therefore it is fair to say that any risks to Mexico’s economic outlook are tied very closely to the US Market.
Notwithstanding the close link between Mexico and the US, Mexico is poised for a growth rate of over 4% for 2012. This is supported by a well anchored inflation rate and a banking system that is free from the contagion of external risks.
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