The economy of Mexico is vibrant and diversified. Presently, undergoing deceleration with the tariffs imposed by the administration of Donald Trump just recently in his second term in office adding insult to injury, the Mexican economy has a promising future ahead according to most economists. Currently, the economy has an output that reached over $ 1.8 trillion in nominal terms last year with an expected negative real GDP growth projected for this year. In fact, growing steadily at mid-single digits throughout the last decade but accruing a decelerated rate of real GDP growth since the pandemic and expected to show a negative growth rate this year, the impact to its export potential as well as GDP per capita when adjusted for purchasing power parity or PPP is somewhat low. Nonetheless, in nominal terms the economy is expected to shrink this year. Altogether, GDP per capita is projected to stand at $ 13,630 this year, a decrease in nominal terms but reaching $ 25,557 when adjusted for PPP which is an increase for the year ending in 2025. The distribution of the pie has services accounting for 60% of output, manufacturing accounting for 20% of the pie and the commodities sector taking the remainder and divided between the petroleum industry, mining and agriculture. Likewise, the labor participation rate is just over half the total population of roughly 130 million Mexicans with up to a quarter of active workers presently being underemployed boosting a somewhat low rate of productivity per unit of labor. Overall, services employ 58% of the active labor force while manufacturing employs around 12% of active workers. The commodities sector, on the other hand, employs 30% of the active labor force with agriculture alone by itself accounting for a disproportional 18% after contributing around 4% to the total output of the pie. Similarly, among members of the Organization for Economic Cooperation and Development or OECD, Mexico has the highest poverty rate at roughly 40% of its total population and is the third most unequal country after Colombia and Chile among members of the OECD. Showing improvements after decreasing its poverty rate from 50% to 40% since the pandemic and decreasing its GINI coefficient for income distribution five decimal places from 0.49 which is the average regionwide according to OXFAM International to 0.44 today, Mexico has achieved tremendous gains in its income distribution profile. Nevertheless, the country is highly unequal with the richest 0.2 percent of the population presently controlling 60% of the national wealth. Accordingly, in Latin America as a whole, the top 1% of income earners own 66% or two thirds of the total wealth, roughly $ 10 trillion worth of household net worth according to the UBS Group A.G. for the year ending in 2022. By the same token, Mexico has kept a single digit inflation rate for over a decade now and has a single digit rate of unemployment rate as well. However, tax revenues are just 20% of GDP, the lowest among members of the OECD but has a fiscal deficit of only 1% percent of GDP with the public debt currently standing at 57% of GDP or just over $ 900 billion according to CEIC data. In similar fashion, the external debt stands at $ 600 billion or around 33% of GDP today according to CEIC data as well. With Forex reserves presently standing at more than $ 200 billion according to the Bank for International Settlements or BIS, the public debt service including holdings held by foreigners today is sustainable for the foreseeable future with a very comfortable cushion from years of surpluses in the country’s balance of payments since the “Mexican Peso Crisis” when the government was forced to devalue the domestic currency and thus embarked on an aggressive restructuring of its finances implementing austerity measures after securing a rescue package from the International Monetary Fund or IMF amounting to $ 50 billion worth of loans. Today, after three decades of sound fiscal and monetary policy, Mexico has a dynamic economy greatly benefiting from trade with US and Canada after the enactment of NAFTA, letting the Mexican Peso float freely while carefully executing smart monetary policy under an inflation-targeting monetary regime.
Moreover, Mexico conducts trade with various nations globally with ongoing free trade agreements with the US, Canada, Colombia, Costa Rica, Bolivia, Nicaragua, Chile, the European Union, Israel, Guatemala, El Salvador, Honduras, Norway, Liechtenstein, Switzerland, Uruguay, Japan and Peru. With the US and Canada in particular, the commercial exchange partnership is one of utmost harmony, convenience, comparative advantages and synergies after the enactment of NAFTA decades ago and the newly enacted in 2018 United States-Mexico-Canada Agreement, known simply by its acronym as the USMCA and which came into effect in 2020. Accordingly, although the newly implemented Trump’s tariffs on all goods worldwide and including those from Mexico and Canada would hurt trade contributing to a potential loss of total surplus or deadweight loss, some items are already exempted from the tariffs including auto-parts compliant with USMCA regulations. In addition, Mexican and Canadian exporters are also exempted from the 10% baseline tariffs. Altogether, Mexico was the single largest exporter to the US last year, reporting inflows of $ 505.9 billion for 2024 alone and ahead of China itself according to the Office of the United States Trade Representative. Likewise, Mexico reported total exports of $ 617.1 billion last year representing around 33% of GDP and total imports of $ 625.3 billion last year as well resulting in a trade deficit of $ 8.2 billion in 2024 alone according to Trading Economics, a negligible amount in relative percentage terms that happens to be totally offset by remittances in its current account and a net positive foreign direct investment or FDI in its capital account. Remittances in particular have gained traction as the single largest source of foreign hard currency in Mexico surpassing international tourism receipts and oil exports within the last decade. In fact, the country received a staggering figure last year amounting to $ 64.7 billion worth of dollar remittances in 2024 alone according to BBVA Research. Overall, nearly 90% of exports in Mexico are done with its NAFTA trading partners while over half of its imports come the US and Canada as well. On the other hand, Mexico is self-sufficient in its electricity consumption importing natural gas from America in the form of liquid natural gas or LNG to fuel its home-built thermoelectric power plants. Currently, 75% of electricity in Mexico come from fossil-powered sources while 20% comes from hydro power and the remaining 5% from nuclear and renewables. By the same token, authorities in Mexico are working tirelessly to augment the share of renewables in its electricity consumption basket with an aggressive plan complying with measures suggested by the Paris Agreement addressing global warming and intended to diminish greenhouse emissions substantially in years to come. Overall, Mexico is a net exporter of energy after being a major exporter of crude oil with the entire industry owned by the state and held under its flagship oil giant corporation known as Petróleos Mexicanos S.A., better known as PEMEX. In a similar manner, Mexico is self-sufficient in its food consumption after being a net exporter of food. In fact, the country produces food for more than twice the size of its population, slightly below the average regionwide of three times the size of its population according to the Food and Agriculture Organization or FAO. Presently, countries leading the chart in relative percentage terms include Argentina and Guatemala producing food for ten times the size of their respective populations nowadays. Nevertheless, the leader regionwide in absolute terms producing food for five times the size of its population is Brazil according to the FAO. As a result, Argentina produces food for over 400 million people with a national population of only 46 million inhabitants whereas Brazil produces food for one billion people with a national population of roughly 210 million inhabitants.
The services sector in Mexico is one of booming growth after accounting for 60% of total output. Presently, banking and commerce account for 20% of output apiece and amounting to 40% of total output when combined. The remainder 20% is led by tourism currently accounting for a 5% share of total output, a 50% reduction within the last decade translating into a static rate of growth and negatively impacted by the COVID-19 pandemic. Altogether, Mexico received $ 36.872 billion worth of net positive FDI last year, a record peak with the current stock of FDI standing at over $ 600 billion which is roughly twice the amount Mexico owns abroad according to Trading Economics. Among the sectors capturing a good piece of net positive FDI, the services sector is one worth mentioning. In fact, the biggest commercial banks in the country are controlled by foreign financial services multinationals including BBVA S.A. and Banco Santander S.A. of Spain, Citigroup Corporation of the US, HSBC Holdings PLC of the UK and Bank of Nova Scotia Corporation of Canada. Over three quarters of Mexican adults are bankarized, just above the average regionwide now reported at around 75%. Similarly, in the retail segment, Mexico is home to the biggest retail establishment regionwide known as Walmart de México y Centroamérica S.A.B. de C.V., also known as Walmex. This operation is probably the single most opulent foreign direct investment Mexico has while currently employing over 200,000 associates and reporting around $ 60 billion a year in sales. Accounting for roughly a 10% share of the total consolidated sales Walmart Corporation reports annually today, the listed retail operation in Mexico boasts over 3,000 stores, most of them supermarkets throughout the entire Mexican and Central American landscape under several banners. By the same token, the biggest home-grown retail multinational in Latin America is FEMSA Comercio, the fully-owned retail division of Fomento Económico Mexicano S.A.B. de C.V., better known as FEMSA. The latter operates the single largest convenience store chain in Latin America and the second biggest worldwide after the Japanese multinational known as Seven & I Holdings Company Limited. The operation boasts over 20,000 convenience stores operating under the banner “OXXO” in several countries in Latin America, Canada and the US while employing over 160,000 workers. Likewise, FEMSA is also the single largest operator of pharmacies in Latin America through its wholly-owned retail division known as FEMSA Comercio as well. The pharmacies in question conduct business under several banners presently numbering over 4,500 stores in Mexico, Colombia, Ecuador and Chile. In addition, FEMSA currently generates over $ 40 billion a year in total consolidated sales. Overall, FEMSA is today one of the most valuable companies trading in Latin America with the stock having experienced a very steep rally last year.
The manufacturing sector in Mexico is buoyant and boosted by free trade agreements with NAFTA being the most important of them all. Currently, roughly half of total exports of just over $ 600 billion last year representing one third of GDP are finished goods manufactured in Mexico. In similar fashion, the sector is responsible for 20% of GDP and 12% of active employment, around three quarters of the output within the sector is exported. Among the items Mexico has gained expertise fabricating, consumer electronics and auto-parts are the most important. The former represents 30% of total exports alone and includes TVs, PCs, optical disc drives, laptops, tablets, printers, servers, microprocessors, chipsets, copying machines, smartphones, video cameras, video games, communications equipment, printed circuit boards, solar power panels, microwave ovens and semiconductors. In the segment of TVs alone, Mexico is renowned for the manufacture of flat panel plasma display, LCD and LED televisions. Most of the output in this segment alone is exported, mainly to the US and Canada. Likewise, the manufacture of auto-parts and the assembly of automobiles for export crossing the northern border to the US is quite significant also. In fact, several prominent Mexican conglomerates active in the segment of auto-parts manufacturing include Grupo KUO S.A.B de C.V., Grupo Industrial Saltillo S.A.B. de C.V., ALFA S.A.B. de C.V. and Grupo Carso S.A.B. de C.V. The latter is controlled by billionaire Carlos Slim Helú, makes over $ 10 billion a year in total consolidated sales and includes a listed retail operation, an oil-field services operation, an engineering contractor, a cement maker and the auto-parts maker known as Grupo Condumex S.A. de C.V. There is also a listed automative company dating its presence in Mexico since 1946 and maker of buses, trucks, trailers, SUVs and vans known as Grupo Industrial Ramirez S.A. Altogether, foreign automotive multinationals with a solid presence on Mexican ground include General Motors Corporation, Ford Motor Company Corporation, Volkswagen Group A.G., Stellantis N.V., Nissan Motor Company Limited, Mercedes-Benz Group A.G., BMW Group A.G., Toyota Motor Corporation and Honda Motor Company Limited. Both Volkswagen and Nissan have an old manufacturing presence dating back to the early 1960s in Mexico, long before the proliferation of “Maquiladoras” and the enactment of NAFTA. Similarly, foreign multinationals in the segment of consumer electronics manufacturing active in Mexico worth mentioning include Sony Group Corporation, Panasonic Holdings Corporation, Toshiba Corporation, Samsung Electronics Company Limited, LG Electronics Corporation, Sharp Corporation, HP Corporation, Lenovo Group Limited, Acer Corporation, Dell Corporation, Microsoft Corporation, Koninklijke Philips N.V. and Hon Hai Precision Industry Company Limited, better known as Foxconn. In addition, Mexico is gaining expertise in the segment of aerospace manufacturing with the establishment of factories owned by foreign multinationals like Bombardier Corporation of Canada and Textron Corporation of the US for the manufacture of jet fuselages and the assembly of helicopters as well earmarked towards the export market primarily.
The commodities sector, on the other hand, has always been essential to the economy of Mexico ever since massive reserves of petroleum were found sitting underground on Mexican soil and off-shore in the Gulf of Mexico. The state-owned petroleum industry, nationalized by the late Lázaro Cárdenas, the first president of modern Mexico dating back to the 1930s, is an important contributor to state revenues, most of them exports to the US. Similarly, Mexico has plans to fully nationalize the lithium mining segment as well after having found immense deposits of the mineral in the states of Sonora and Chihuahua in northwestern Mexico and thus creating just recently a state-owned lithium mining operation known as Litio para México S.A. de C.V., more commonly known as LitioMX. Other mining areas of incursion in Mexico led by the private sector rather than the Mexican government include copper ore, lead, zinc, molybdenum, mercury, bismuth, manganese ore, phosphate, gold and silver. In the precious metals mining segment alone, Mexico is the single largest miner and refiner of silver worldwide while holding important market positions in gold, copper ore, lead and zinc. Currently, two Mexican mining players that stand out are Grupo México S.A.B. de C.V. and Industrias Peñoles S.A.B. de C.V. The former is the third biggest copper mining company globally and a true conglomerate as well after operating two side businesses in Mexico whereas the latter is a mining champion in its own right presently being the single largest miner and refiner of silver worldwide with its precious metals’ mining subsidiary domiciled and listed in London and known as Fresnillo PLC. On the agriculture side, Mexico is the birthplace of corn farming. In fact, the crop was first domesticated in southwestern Mexico back in the early neolithic by the ancestors of the ancient Olmecs and later by other indigenous Mesoamerican civilizations including the Maya peoples, Mixtecs, Zapotecs, Toltecs and Aztecs. Today, Mexicans possess the single largest consumption per capita of the cereal grain after being part of their daily diet constituting a staple dish in the form of “Tortillas”. Overall, Mexico produces one of the ten biggest harvests of the crop on the planet presently reaching 20 million metric tons of corn annually and subsidized by the Mexican government, roughly half of the output is consumed domestically while the rest is exported. In a similar manner, Mexico is the single largest producer and net exporter of avocados, onions, limes, lemons and sunflower seed as well second largest producer and net exporter of papaya, chilies and pepper. Other crops where Mexico has important market positions include oranges, asparagus, mangoes and sugarcane. In the sugarcane segment alone, Mexico has been gaining market exposure and accordingly produces one of the ten biggest harvests worldwide. In fact, the nation operates over 50 sugarcane processing plants between mills and refineries while producing an output amounting to over 5 million metric tons of sugar a year, a figure surpassed only by Brazil in Latin America according to Statista. One domestic player in the sugarcane segment that stands out presently possessing the third biggest installed crushing capacity nationwide being the sole sugar supplier supporting PepsiCo’s bottling operations throughout the country is Grupo Azucarero México S.A.B. de C.V., a closely-held operation belonging to prominent local tycoon in Mexico Juan Gallardo Thurlow. In addition, Mexico is also an important producer and net exporter of chicken meat. One domestic player that stands out in Mexico in the business of white meats is Industrias Bachoco S.A. de C.V., a listed operation controlled by the Robinson Bours Almada brothers, an important old money and low-profile poultry farming clan in Mexico and active in local politics as well in the state of Sonora.
Furthermore, Mexico has the second biggest stock market in Latin America presently standing at 30% of GDP which is the average regionwide. A total of two stock exchanges operating in the country include the main one known as the Mexican Stock Exchange and the newly created bourse known as the Mexican Institutional Stock Exchange in operation since 2018 while ending a 43-year monopoly in Mexico. The former is the biggest of the two with 140 issuers trading at a total equity market capitalization amounting to around $ 530 billion today while the latter has only 64 issuers trading a much smaller total equity market capitalization presently standing at $ 17.3 billion. Likewise, market participants in the Mexican Institutional Stock Exchange are mostly institutions and a sizable share of issuers are Mexican real estate investment trusts or REITs. Accordingly, Mexico has witnessed a proliferation of REITs since entering the millennium and is home to the single largest REIT in Latin America known as Fibra Uno Administración S.A. de C.V., commonly known as FUNO. The company possesses a portfolio of properties including a chain of indoor malls reaching an area containing 2 million square meters of gross leasable area. Other properties in its managed portfolio include office buildings, hotels, warehouses and parking lots currently occupying an additional 1 million square meters of gross leasable area. Moreover, four business groups alone by themselves are responsible for nearly half the entire equity market capitalization of Mexico. These four business groups are Walmex, FEMSA, Grupo México and the whole listed company portfolio affiliated with billionaire Carlos Slim Helú trading at roughly $ 120 billion when combined from seven issuers overall. The crown-jewel of Carlos Slim Helú’s empire is his controlled telecom multinational juggernaut known as América Móvil S.A.B. de C.V. In fact, one third of the billionaire’s net worth is derived from his shareholding in the company alone. The rest of the seven shareholdings are responsible for another third of the Mexican baron’s fortune while the remaining one third of his net worth comes from holdings in his family office according to Bloomberg L.P. The latter has around $ 30 billion worth of NAV from reinvested dividends deployed mostly in equity instruments and real estate across the western hemisphere and throughout Spain including control of Fomento de Construcciones y Contratas S.A., better known as Grupo FCC.
To conclude, Mexico is a net creditor according to its net international investment position or NIIP standing at -34% of GDP in 2024, having decreased from -51% of GDP before the pandemic in 2019 and therefore, showing an improvement in this metric. Currently, the country has an investment grade sovereign credit rating by all three credit rating agencies with Fitch Ratings assigning the economy a stable outlook. Altogether, Mexico has a household wealth approaching the $ 5 trillion mark at 2.5 times GDP for the year ending in 2022 according to the UBS Group A.G., slightly above the average regionwide presently at 2.2 times GDP. However, the protectionist measures undertaken by the second Trump administration are expected to inflict hardship on the Mexican economy. In fact, the Trump tariffs are intended to offset or at least reduce a huge trade deficit in finished goods the US has, especially with China and other Asian countries. This maneuver could in turn most likely benefit the US at the expense of its trading partners. By the same token, the Trump tariffs should enable America to bring manufacturing jobs back to its soil and rebuild the country’s industrial base. For instance, out of the 16 million cars sold in America last year, over half of them were imported. Consequently, Mexico must address this complex unfavorable macro scenario carefully and hedge its exposure accordingly. As of now already, auto-parts compliant with USMCA regulations are exempted from the tariffs and hopefully more exemptions should come in Mexico’s favor.