Mexico’s Economic Make Up

Features of the Mexican Economy:

Mexico has a free market economy with an assortment of contemporary and obsolete industry and agriculture. It is becoming increasingly dominated by the private sector. As the 11th largest economy in the world, Mexico had an estimated GDP of US$1.567 trillion as of 2010. The country has a banking system that is financially resilient with banks that are well capitalized. More foreign companies are entering its banking sector, as an increasing number of foreign institutions merge with local companies. The acquisitions and consolidations of foreign institutions with local companies helped Mexico recover from a currency crisis in 1994.

In 2010, the unemployment rate in Mexico was 5.373 percent. This number is dropping, as Mexico’s manufacturing sector has continued to expand. Its economy is large and well-diversified. The country has a population of 112.3 million, more than half of it citizens are under the age of 25. Opening to trade and investment has resulted in extremely vibrant export industries. Mexico is ranked number one in the world for railway car and beer exports; 2nd for motor vehicles for the transport of goods, refrigerators and freezers, and television receiver exports; 3rd for tractors exports; 4th for parts for spark-ignition-type engines and reinsurance services exports; 5th for electric motors and generators exports; and 9th for motor cars for the transport of persons exports. The functioning of the economy is based on solid macroeconomic fundamentals, including confined public debt, low inflation and interest rates, and a provisioned banking system.

The success with which a country’s financial system functions to channel savings into productive activities has an important effect on economic growth. The last two decades have been years of remarkable change in Mexico’s financial structure that has had a deep impact on economic activity and growth. Mexico has become a country with modern financial institutions that increasingly play a more important role in positively contributing to the country’s growth.

Recent Developments and Outlook:

Mexico has shown a continuous process of economic recovery driven both by growing external and internal demand. Economic growth has been accompanied by improvement in labor conditions as well as financing to the private sector. Mexico has also attracted an increasing proportion of the investment inflows directed to emerging markets. It is projected that Mexico’s moderate growth will continue for the near term.

Inflation and Monetary Policy:

Inflation in Mexico

The credibility of economic policy has fostered the development of domestic financial markets. The Mexican Peso Exchange operates 24 hours a day. It is the most transferable currency in emerging markets. Foreign investors hold approximately half of the total of outstanding peso-denominated government securities.

Since mid-2011, inflation has been gradually increasing, which reflects some exchange rate pressures from food and agricultural prices. The gradual increase in core inflation is a result of peso devaluation in tradable goods. There is a goal of convergence of inflation to 3%, and risks may mean the monetary policy will have to be adjusted. Risks include second round effects of supply shocks, further FX volatility, and rising demand pressures as some signs that slack has disappeared, which can lead to possible deterioration of inflation expectations

The goals of a monetary policy has been a defining issue for economists and public opinion since central banks were amalgamated as units accountable for providing economies with currency and implementing monetary policy. Many countries, including Mexico, have reset monetary policy goals in recent years. The Central Bank’s major priority is to ensure price stability. This goal has been formalized by establishing low-level inflation targets. By pursuing an environment of low and stable inflation, the appropriate conditions for both sustained growth and the creation of permanent jobs are established.

GDP Growth for Mexico, the U.S. and the World