What makes the economy of Mexico grow?
As the economy of Mexico expands, the country sets a course for Latin American leadership.
While over the last decade, as a member of the BRICS, Brazil has garned much attention, Mexico has been quietly positioning its economy to become a major world player. In the past couple of years, world economists and business leaders have had to step back and take notice. In 2012, the economy of Mexico has generated output that has surpassed that of Canada, and Mexico’s GDP growth rate outpaced both Canada and the US during the last couple of years. The country exports as much in manufactured goods as the rest of Latin America combined. For all intents and purposes, the economy of Mexico is poised to surpass Brazil’s within 10 years to become Latin America’s largest economy, and financial firms like Goldman Sachs are forecasting that Mexico’s economy will break into the list of the top ten largest in the world by 2020.
Possibly the largest contributing factor to this recent development is the aggressive round of reforms enacted by the government of President Enrique Peña Nieto, which has focused on infrastructure, privatization, and renewing industry to be more geared for churning out higher volumes of manufactuered exports. These reforms and new policies have caught the attention of the world, and renewed investor confidence in this emerging market. This has been reflected in recent credit upgrades this year, including Mexico’s first-ever A3 rating from Moody’s and a BBB+ rating from Standard & Poor’s.
Manufacturing for export the strong suit of the economy of Mexico. Subsequently, it is not difficult to see how recent boosts in manufacturing have contributed to the country’s economic growth. Merchandise goods manufacturing rose 3% in 2013, a figure that prompted the Boston Consulting Group to note that manufacturing could add $20 – $60 billion to Mexico’s economy through 2018. Mexico now exports about US $1 billion worth of goods each day. This represents a 1,000% increase since NAFTA was implemented. NAFTA however, isn’t Mexico’s only international agreement; it economic policymakers and negotiators have added literally dozens more to their portfolio, thus positioning Mexico as the manufacturing exporter of choice for many global companies.
Though Mexico’s credit framework and stock market haven’t been as strong for developing businesses as they may be in other emerging markets, Mexico is making strides to change this. Mexico’s private equity sector has grown fifty percent since 2000, and its government has recently begun reforming thirty-four financial and banking laws in order to improve banking regulations, enhance competition, and stimulate more investor confidence in businesses and the economy of Mexico.
Mexico has also benefited from economic diversification efforts, which have further cemented the country’s status as a growing power, particularly in with regard to its pension funds and bonds. Mexico’s twelve pension funds hold over US $150 billion in assets, which has paved the way for investment in infrastructure and real estate trusts in the US. This has further enabled Mexico to diversify to an even greater extent. Additionally, the recent Moody’s credit rating upgrade has prompted Mexico to offer their first 100-year bonds in British pounds, a move that raised $1.66 billion in capital which will be used to bolster and expand the country’s economy.