Mexico Economy Facts

by ebizdir · Published January 30, 2023 · Updated February 22, 2023

Economical overview

The ancient agricultural land of Mexico is still one of the world’s leading corn and vegetable growers, but since the beginning of the 20th century, oil extraction and later industry have become increasingly important to the economy. Nevertheless, trade and services, including tourism, now constitute the majority of the gross domestic product.

Mexico is classified by the World Bank as an “upper middle income country” and in 2018 was ranked as the world’s 15th largest economy. The official economy is highly integrated with the outside world, and not least with the US and Canada, and is characterized by highly productive manufacturing. However, there is also a significant “black” sector. Between one third and half of the total economic activity is estimated to take place in the informal sector. It contains everything from drug trafficking to shoe shoveling. Well over half of the residents support themselves through work outside the tax system and an almost equal share of the population is considered poor.

Countryaah.com: Major imports by Mexico, covering a full list of top products imported by the country and trade value for each product category.

In recent decades, Mexico has deliberately invested in manufacturing, not least car manufacturing, to reduce its dependence on oil. Mexico has succeeded better than many other oil producers, which has been an advantage over the declining oil prices of recent years.

The oil decreases in importance

The state-owned oil company Pemex (Petróleos Mexicanos) was a dairy cow for the state for a long time and until recently provided a third of the revenue. At the beginning of 2017, however, the oil accounted for less than one-fifth of the state’s revenue and only around 5 percent of exports. Oil recovery has been declining every year since a peak in 2004 and is almost down to half of what it was then (see also Natural Resources, Energy and the Environment).

Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including MEX which represents the country of Mexico. Check findjobdescriptions to learn more about Mexico.

In 2014, a controversial reform of the energy sector was completed, which opens up for foreign investors. Since 1938, Pemex had had a monopoly on all aspects of oil extraction, which was considered almost sacred to many Mexicans. Political opposition is strong against anything resembling privatization.

Naphtha and T-MEC

The free trade agreement Nafta concluded with the US and Canada in 1994 resulted in increased access to the US market, but also increased competition. Nafta contributed to a rapid increase in export-oriented industry in Mexico, as well as to the establishment of assembly plants, maquilas, along the US border. Maquila’s exemption from, among other duties, duties and benefits from being able to employ low-wage workers with few rights.

Following Donald Trump’s resignation as President of the United States in 2017, Nafta became the subject of renegotiations, as Trump claimed that the agreement disadvantaged the United States (see further Foreign Policy and Defense). In August 2018, Trump stated that a new free trade agreement was reached with Mexico and the following month there was an agreement that also included Canada. Trump called the US-Mexico-Canada Agreement (USMCA) but Mexico’s incoming President Andrés Manuel López Obrador stated that it is not possible to pronounce in Spanish and instead launched T-MEC (Spanish for the Mexico-US-Canada Agreement). Mexico ratifiedthe agreement in June 2019, but opposition continued to be strong, especially in the US Congress, where Democrats demanded better labor law guarantees. It ended with adjustments and a new agreement signed by the parties in December and shortly thereafter ratified by Mexico. In the US and Canada, ratification was completed in January and March 2020 respectively.

Other agreements

In addition to Nafta / T-MEC, Mexico has signed about ten free trade agreements with a total of around 45 countries in three continents. With the EU there is an agreement since 2000. Mexico has one of the world’s largest networks of free trade agreements, and over 90 percent of trade is done within them.

Mexico was also present when twelve countries around the Pacific signed the Free Trade Agreement TPP (Trans-Pacific Partnership) in 2016. One purpose of the agreement was to counterbalance China’s dominance in Asia. In its original form, the TPP would have covered 40 percent of the world economy, but it failed before it came into force when the US withdrew after Trump’s entry. However, the remaining eleven countries decided to stick to the agreement. They together account for about 14 percent of the world economy and have a total population of over 500 million, which is more than the EU. After some adjustments, they signed in March 2018 under the TPP-11, or CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Parthership). The agreement means that tariffs will be lowered between the countries and, according to the hopes, will contribute to increased growth. CPTPP includes economic heavyweights such as Japan, Canada and Australia. The other Latin American countries in the CPTPP are Chile and Peru.

Money from exile Mexicans

Mexicans working in the United States make an important contribution to the home country’s economy. The remittances stood at just over 2.7 percent of GDP in 2016 and were thus back on the previous peak quotation reached ten years earlier. Money shipments are estimated to have been oil in 2015 as the largest source of foreign currency. In addition, the money often goes to poor families who thus get a little better off.

Mexico is also trying to increase its foreign trade with other countries so as not to be too dependent on the US economy. The fairly low wage situation in Mexico is an advantage when the industry seeks new markets. Competition has been felt from China, for example, where wages have been even lower, but now costs in China have increased and Mexico is again interesting for production in the US market.

One problem that hinders growth is the low tax collection. Tax revenues are around 17 percent of GDP, which is half of the OECD average. Since the end of the 1990s, growth has averaged around 2 percent. However, in 2019, growth was below zero, according to the National Statistics Office. It was the first time since the global financial crisis ten years earlier that growth was negative.