Mexico's GDP: Duality and Economic Challenges
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Mexico's GDP: Duality and Economic Challenges

Mexico's economy is dual, with a trillion-dollar GDP, but 36% of its population is below the poverty line. The primary sectors are agriculture, industry, and services, with services employing the majority of the workforce and contributing the most to the GDP. Although Mexico faces economic challenges such as declining growth rates, poverty reduction, and inclusion, it remains a significant player in the global economy due to its valuable resources and trade agreements.

Basics

Mexico's economy presents a stark duality. On one side, it boasts a trillion-dollar GDP, yet on the other, about 36% of its population lives below the poverty line. Notably, among the 38 OECD member nations, Mexico holds the second-highest level of income inequality.

Mexico's GDP and Economic Challenges

Mexico is considered an "upper middle income" country by the World Bank, with a GDP of $1.41 trillion in 2022, making it the 14th-largest economy globally by nominal GDP. It ranks 84th by purchasing power parity (in constant 2017 international dollars). As the second-largest economy in Latin America after Brazil, Mexico also exports oil. The graph below, sourced from the World Bank, shows Mexico's annual GDP growth rate in its local currency.

From 1980 to 2020, Mexico faced economic challenges, including a major dip in GDP in 2009 during the global financial crisis. Subsequently, from 2010 to 2018, Mexico experienced modest growth, ranging from 1.35% to 5.12%. This period marked the end of the commodity super-cycle, characterized by high commodity prices driven by demand from countries like the United States, Eastern Europe, and BRICS (Brazil, Russia, India, China, and South Africa).

According to the World Bank, in 2019, Mexico's growth rate declined to -0.05%, and it performed worse than similar economies in terms of poverty reduction, growth, and inclusion. The COVID-19 pandemic in 2020 caused an 8.24% economic contraction in Mexico due to demand and supply shocks.

GDP Breakdown

In 2022, Mexico's GDP is composed of three main sectors:

  1. Agriculture, forestry, and fishing contribute 4.1%.
  2. Industry accounts for 32.1%.
  3. Services make up the largest portion at 58.8%, according to World Bank data.

Agriculture in Mexico

Agriculture contributes just 4.1% to Mexico's GDP, a figure that has remained below 4% for over two decades. Despite its modest GDP share, the primary sector is significant for Mexico, fostering trade with the United States, creating jobs (12% of the workforce), and combating poverty. The agricultural sector is divided into subsistence farming in rural areas and export-oriented farming, which, while competitive, worsens income inequality among agricultural workers. See the World Bank graph for historical contributions to Mexico's GDP since 1980.

Import & Export

Mexico's agricultural imports and exports were valued at approximately $41.4 billion and $46.6 billion, respectively, in 2021. The United States is Mexico's largest trading partner, accounting for roughly 80% of Mexico's agricultural exports.

Mexico and the U.S. have a complementary trade relationship, wherein they exchange different agricultural products. For instance, Mexico imports substantial quantities of grains and oilseeds from the United States due to insufficient domestic production. U.S. agricultural imports from Mexico primarily consist of beer, distilled spirits, fruit, and vegetables, making up about 83.6% of the total.

Mexico’s Industrial Sector

The industrial sector, encompassing manufacturing, mining, oil, and gas, consistently contributes around 25% to 35% of Mexico's GDP over the past 35 years. Between 2002 and 2022, this sector averaged approximately 32% of the GDP and employed 26% of the nation's workforce. Mexico's prominent and advanced industries include automotive, electronics, and oil.

  • Oil: Mexico ranks 12th globally in crude oil production, with a daily output of 1.9 million barrels, making up 16% of government revenues. Mexico's oil partnership with the U.S. is crucial, with over 212 million barrels of Mexican heavy crude oil imported by the U.S. in 2021.
  • Mining: Mexico leads global silver production and possesses valuable mineral resources, including fluorspar, graphite, and strontium. In 2021, Mexican mineral and ore exports totaled $18.9 billion.
  • Manufacturing: Mexico has high labor productivity and favorable trade agreements. Rising wages in China make Mexico a more attractive manufacturing destination. Manufacturing contributes 19% to Mexico's GDP, with competitive natural gas prices linked to the U.S. supporting this industry.
  • Automotive: Mexico's car industry shifted from assembly to independent research and development. Major car manufacturers, including GM, Ford, Toyota, Mercedes Benz (Daimler AG), Honda, and Volkswagen, operate in Mexico.
  • Electronics: Mexico's electronics industry grew due to government initiatives to enhance competitiveness, aiming to establish Mexico as a top electronics exporter.
  • Energy Reform: Mexico broke the monopoly held by state-owned PEMEX in 2013, allowing foreign investment in its oil sector. The move aimed to address inefficiency, corruption, and bureaucracy within PEMEX. However, recent administrations have been hesitant to continue private sector involvement.

Mexico's Services Sector

Mexico's economic journey saw it shift from agrarian to industrial during the twentieth century, with manufacturing emerging as a primary driver of growth by the 1960s. However, in recent years, the services sector, particularly the financial and tourism industries, has assumed a dominant role.

The services sector, also known as the tertiary sector, now employs 62% of Mexico's workforce and contributes a substantial 58.8% to the GDP.

Notably, Mexico's financial services sector has attracted significant foreign investment, with many major institutions being foreign-owned. For instance, Citigroup Inc. (C) owns Banamex, BBVA oversees Bancomer, Santander operates SERFIN, Inverlat is under Canada's Scotiabank, and Bital is part of HSBC (HSBC).

Tourism also plays a vital role in Mexico's services sector. The country boasts 35 UNESCO-listed cultural or natural world heritage sites, presenting substantial potential for tourism growth.

Conclusion

Mexico has a trillion-dollar economy, but significant income inequality and poverty present a duality in its GDP. The country's economic challenges include declining growth rates, poverty reduction, and inclusion. Mexico's primary sectors are agriculture, industry, and services. The latter now employs the majority of the workforce and contributes the most to the GDP. Despite its challenges, Mexico is a significant player in the global economy due to its valuable resources and trade agreements.

Gross Domestic Product (GDP)
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