Mexico is one of the United States’ top trade and investment partners. Bilateral trade grew 650 percent 1993-2018 and Mexico is the United States’ second largest export market and third largest trading partner. The United States is Mexico’s top source of foreign direct investment (FDI) with USD 12.3 billion (2018 flows) or 39 percent of all inflows to Mexico.
The Mexican economy has averaged 2.6 percent economic growth (GDP) 1994-2017. Mexico has benefited since the 1994 Tequila Crisis from credible economic management that has allowed the country to weather a period of low oil prices and significant global volatility. The fiscally prudent 2019 budget targets a one percent primary surplus, and the new government has upheld the Central Bank’s (Bank of Mexico) independence. Inflation at end-2018 was 4.8 percent, an improvement from 6.6 percent at the end of 2017, but still above the Bank of Mexico’s target of 3 percent due to peso depreciation against the U.S. Dollar and higher retail fuel prices caused by government efforts to stimulate competition in that sector.
The United States-Mexico-Canada (USMCA) trade agreement ratification prospects for 2019 and a historic change in the Mexican government December 1, 2018 remain key sources of investment uncertainty. The new administration has signaled its commitment to prudent fiscal and monetary policies since taking office. Still, conflicting policies, programs, and communication from the new administration have contributed to ongoing uncertainties, especially related to energy sector reforms and the financial health of state-owned oil company Pemex. Most financial institutions, including the Bank of Mexico, have revised downward Mexico’s GDP growth expectations for 2019 to 1.6 percent (Banxico consensus). Major credit rating agencies have downgraded or put on a negative outlook Mexico’s sovereign and some institutional ratings.
The administration followed through on its campaign promises to cancel the new airport project, cut government employees’ salaries, suspend all energy auctions, and weaken autonomous institutions. Uncertainty about contract enforcement, insecurity, and corruption also continue to hinder Mexican economic growth. These factors raise the cost of doing business in Mexico significantly.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||138 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||54 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||56 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$109,700||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2018||$8,610||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|