Mexico Summit 2011

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1. ONLINE

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2. BY PHONE OR EMAIL

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Mexico-highlights: Political outlook

The president, Felipe Calderón of the centre-right Partido Acción Nacional (PAN) will continue to secure only incremental progress on his structural reform agenda in the second half of his six-year term (which expires in December 2012) after his party lost substantial ground to the main opposition party, the Partido Revolucionario Institucional (PRI), in a mid-term legislative election in July 2009. With its sights set on regaining the presidency in 2012 the PRI will project a co-operative front, but be unwilling to support controversial reforms that would facilitate major legislative advances for the PAN government. In a country where widespread poverty and inequality persist, the prospect of only a slow recovery from the worst recession in more than a quarter of a century will raise fears of social unrest. However, although pent-up frustrations will give rise to periodic outbreaks of social discontent, there will be little popular support for extremist politicians. Even so, the difficulties Mr Calderón will face in reversing a recent worsening of violent crime will compound the factors dampening investor and consumer confidence.

Mexico-highlights: Business environment outlook

Mexico’s privileged access to the US market, integration into US manufacturing supply chains (including a progressive move up the value chain), an extensive network of free-trade agreements (FTAs) and a large internal market make it one of the more attractive investment locations among emerging-market economies. A sound fiscal and monetary policy framework helps to contain inflationary pressures and maintain a relatively stable exchange rate. The Economist Intelligence Unit's forecasts assume only gradual progress in addressing some of the constraints to competitiveness in Mexico, including the high cost of labour and other inputs, the unwieldy and time-consuming tax system, and the persistence of vested interests, which hampers free competition.

Mexico-highlights: Market opportunities

Geographical proximity to the US market and strong trade and investment links with the world’s largest and richest economies underpin Mexico’s attractiveness to foreign investors. Moreover, the domestic market is increasingly attractive: Mexico is a middle-income country with the 11th-largest population in the world. Income per head is expected to rise steadily over the forecast period, as is access to credit (from an extremely low base). However, this masks significant income inequality, which restricts the pool of effective consumers.

Mexico-highlights: Long-term outlook

The Economist Intelligence Unit anticipates that economic growth in Mexico in 2010-30 will average 3.2% per year in real terms, barely more rapid than the 1990-2008 average of 3.1%. Our forecast assumes a steady increase in labour productivity over the long term as skills levels improve and structural reforms underpin growth in investment. Measured at purchasing power parity (PPP) exchange rates, we expect Mexican GDP per head to be 36% of US levels in 2030, only slightly higher than 33% in 2008.