Mexican Economy’s Growth in Overdrive

March 25, 2014

March 24th, 2014- The budding economy in Mexico during 2014 is reminding many people of the 1990s when the country was pushing for liberalization in trade and began opening up its borders to international partners.

The change was induced by a youthful president and increasing privatization. The main industries in Mexico that were opened up globally included telecommunications and finance. Completing the North American Trade Agreement (NAFTA) in 1994 may have been the most significant step towards Mexico evolving into a more modern economy. 

Significant changes to Mexico’s economy have been prevalent again since President Nieto took office in 2012. Some of the historic reforms that have occurred include the privatization of the petroleum sector, establishing fiscal reforms and restructuring the country’s ailing education system. As of 2014, Mexico is now one of the most attractive emerging economies worldwide. Manufacturing in Mexico is growing in popularity as major businesses across the globe are finding different benefits in expanding their businesses to Mexico.

The top exports to the United States that may be improving the opportunities for manufacturing in Mexico include automobiles, aerospace and automobile parts. Industry experts believe that during 2014, Mexico may surpass Japan as the No. 2 new-auto exporter to the United States. Global auto-industry data produced by IHS Inc. suggests that Mexico may exports 1.7 million vehicles to the Unites States in 2014, exceeding Japan by around 200,000 units. Production in the two countries have not been this close since 2011. Mexico now produces around 20 percent of the vehicles manufactured in North America. This manufacturing rate in Mexico is approximately three times higher than before NAFTA went into effect.

With less barriers and more incentive to save brought on by the Great Recession, an increasing number of international firms are finding it more economical to do business in Mexico opposed to Japan or China. Places like Tijuana, Mexico have become popular destinations for high-tech manufacturers that need low-cost labor and qualified engineers. Local economists claim that these conditions are actually prevalent throughout the majority of Mexico. Countries and prominent businesses looking for high quality engineering and strong manufacturing are now viewing Mexico as the leading candidate.

While U.S GDP growth is estimated to be close to 3 percent in 2014, Mexico’s GDP is forecasted to reach 3.8 percent. The United States is currently the largest export destination for Mexico. The value of the two countries’ trade agreement now exceeds $500 billion, increasing 2.6 percent since 2012. Household brands, including Nestle Co., PepsiCo and Cisco, recently announced plans to expand operations throughout Mexico, totaling $7.3 billion in new investments.

During 2013, more than 50 companies from Japan committed $1.79 billion to expand operations in central Mexico. The move is expected to create more than 12,500 new jobs in the country. Improved monetary and fiscal policies in Mexico have recently compelled Moody’s to upgrade the country’s debt rating from Baa1 to A3. According to analysts at Goldman Sachs, Mexico may be on track for evolving into one of the ten largest economies worldwide by the year 2020.