YEAR IN REVIEW

Standing Tall

Mexico has emerged as one of largest and most stable economies in the Americas, with a sustainable growth rate and a top position as a producer of crucial natural resources. Its geostrategic location, mineral resources, manufacturing base, and prudent economic management are the key engines propelling strong socio-economic development.

These forces are operating against a backdrop of dynamic industrial and agricultural output as well as one of the most extensive land transportation networks in Latin America, making Mexico a strategic economic hub in the region. Mexico has also become one of the strongest goods exporters in Latin America. The “Made in Mexico” brand is enjoying increasing recognition and a growing global footprint. In concert with carefully designed legal frameworks for investment and partnership, Mexico is garnering a strong reputation as a business-friendly country.

Mexico has rapidly recovered from the sharp contraction suffered in 2009 associated with the global financial crisis. In 2010, Mexico’s economy expanded by 5.4% due to its strong fundamentals and the government’s skillful management of the economy, propelling to reach GDP $1.15 trillion in 2011. This growth rate represents the fastest in a decade, as foreign trade now represents 60% of Mexico’s GDP, up from 25% in the early 1990s.

In addition, major international financial institutions estimate that Mexico’s per capita GDP growth will outpace that of the US by 3.5 times over the coming decade, currently standing at $10,153. Mexico is well on its way to becoming the world’s eighth largest economy by 2050.

Giving credence to its pro-business rhetoric, the Mexican government has been shrinking the public sector budget deficit significantly over the last five years. Following the 2011 budget, spending in 2012 is up 7.9% at $298.3 billion, including a deficit of around 4%.

At a time when most of the world has been falling into debt to stimulate growth, Mexico has been active in cutting its sovereign debt to 38% of GDP. In addition, Banco de México, the country’s central bank, has been active in buying dollars on the currency market, and has built up reserves of $142 billion, forming a useful rainy-day cushion for policymakers in the event of another crisis. Despite strong levels of growth, inflation levels have remained muted. In year-on-year terms, annual inflation stands at 3.8%, the coolest it has been in the last 12 months as capital inflows strengthen the peso and counter rising commodity prices.

Banco de México has conducted robust monetary policy, especially relative to some of the other fast-growing emerging economies, with which Mexico competes. Mexico’s currency is surging as foreign investors buy up peso-denominated bonds. Capital inflows have hit historical highs, with some $37 billion in portfolio inflows arriving in 2010. Mexico’s inclusion in the World Global Bond Index has been key behind this growth, with some $23 billion of these flows going into treasury bonds. Mexico’s sovereign bonds are currently offering higher yields than its comparable Latin American neighbors, showing a unique opportunity for foreign capital market investors as risk perception catches up to economic reality.

Private sector credit accounts for a mere 25% of GDP, and, most importantly, Mexico’s financial institutions are perfectly positioned to bankroll growth. The banking sector boasts a capital adequacy of 16.5% on average. This is higher than the average for Latin America (15.7%) as well as the average for the world’s AAA-rated banks (12.6%).

Mexico is also the world’s seventh largest producer of oil, which accounts for one-third of the federal budget. High commodity prices in concert with the state’s success in stabilizing production through the national oil company PEMEX have had a beneficial effect on the economy.

In terms of manufacturing, Mexico is well on the way to regaining its competitive advantage as the gap closes between salaries for Mexican and Chinese factory workers. Mexico is a key member of the World Trade Organization (WTO) as well as the North America Free Trade Agreement (NAFTA), giving it an advantage in trading terms that has long inspired investment. As well, economic growth is being translated into robust consumer demand. Demand in the burgeoning local consumer market is helping to support Mexico’s traditionally strong export base, making it a more attractive market for international retailers of all types and helping the economy weather any shocks coming from lower export demand from its main markets in North America.

With a population of some 115 million, and a median age of 26 years, the country’s young and dynamic demographic profile also make it an attractive destination for those looking to benefit from positive local growth dynamics.

Mexico offers opportunities as wide and diverse as the land itself. The Business Year: Mexico 2012, through interviews and analyses, aims to increase international awareness as to the potential this dynamic country offers the global trade and investment community.