Mexico

Politics:

• Analysis

  Mexico politics: Sacred cows no more

  Mexico's new president: Sacred cows no more

  Enrique Peña Nieto's proposal to reform television and telecoms shows he is serious about shaking up the economy

  DURING Enrique Peña Nieto's successful run for Mexico's presidency last year, political observers took his promises of structural reform with a large pinch of salt. Mr Peña belongs to the Institutional Revolutionary Party (PRI), which ruled the country autocratically for seven decades and had blocked or watered down most of the legislative agenda of Felipe Calderón, the president in 2006-12. Moreover, he owed much of his rise to prominence to Televisa, a television network that has 70% of Mexico's national free-to-air market. The company broadcast soap operas starring his future wife and gave him fawning coverage in the campaign. The common view held that Mr Peña would impose no more than cosmetic reforms on Televisa--or on any of the other interest groups that have hamstrung Mexico's economy.

  In the space of just two weeks, however, Mr Peña has revealed the extent of his ambition. Now that the PRI has retaken the presidency, he seems intent on clearing out the monopolistic blockages to Mexico's growth and confronting some of its most formidable lobbies. On February 26th prosecutors arrested Elba Esther Gordillo, the head of the teachers' union, on embezzlement charges. And on March 11th Mr Peña turned on Televisa itself--as well as Carlos Slim, the world's richest man--by announcing a reform that could at last open up some of Mexico's least competitive industries. "I'm here to transform the country, not simply run it," the president said the day before the plan was unveiled.

  Mr Slim, who controls the telecoms empire América Móvil, and Emilio Azcárraga, the boss of Televisa, are Mexico's best-known oligarchs. Their companies both enjoy the lion's share of their markets. In 2012 the OECD estimated that the dearth of competition in telecoms cost the country's economy $25 billion a year, because of high prices for broadband and calls from fixed lines to mobile phones. Regulators have tried to chip away at Mr Slim's empire for years. But its lawyers have frequently obtained injunctions to prevent inconvenient rulings from taking effect.

  Mr Peña's proposal, which his finance minister says would increase Mexico's annual economic growth rate by one percentage point, would leave América Móvil with little wiggle room. He intends to set up a new, autonomous telecoms institute with the power to impose stiff penalties on firms that control over half their markets, or even break them up. Assuming a separate regulatory reform bill is also passed, the agency's decisions would take effect immediately and remain in force unless reversed by a court judgment.

  Moreover, the institute could implement asymmetric connection fees. That would force América Móvil to pay more to route calls to its competitors than vice versa. The plan would also scrap foreign-ownership limits and set up a state-owned "carrier of carriers". Investors seem to believe the plan will have an impact: América Móvil's shares fell by 9% in the three days after it was revealed.

  In television, the reform seeks to bring new competitors into the market. It would create two new national networks by holding spectrum auctions in which Televisa and its smaller rival, TV Azteca, would not take part (though Mr Slim, who is eager to enter the broadcast business, presumably could). Non-Mexicans could hold up to 49% of broadcasters. Finally, it would force content providers to offer their shows to all cable-TV firms, and cable-TV firms to carry the shows of all content providers.

  The plan would require a constitutional amendment to change foreign-ownership limits. That entails support from two-thirds of Congress and a majority of state legislatures. When the PRI was in opposition, it made sure that Mr Calderón--who often listed antitrust reform as a main objective--fell short of those thresholds. But Mr Calderón's conservative National Action Party and the centre-left Party of the Democratic Revolution have been more accommodating: they have both signed a deal with Mr Peña to support a joint policy agenda. That will make it harder for the incumbent firms to block the plan. If the president does get his way, he might build enough confidence to push through promised energy and fiscal reforms as well.

  Mr Peña's proposal is good news in economic terms. For the opposition, however, it is potentially double-edged. After generations of hegemonic rule, the centrist PRI is still the country's strongest party. If Mr Peña succeeds, it will be able to argue that it is the only lot that can get anything done. Mexican consumers may see more competition under Mr Peña. The opposition will have to work hard to ensure that Mexican voters do not see less.

  March 16, 2013

• Background

  Mexico: Key figures

  Enrique Peña Nieto

  After winning the July 1st election, Mr Peña Nieto will be sworn in as president in December for a six-year term. His fairly positive track-record as governor of the Estado de México (2005-11), the country's most populous and industrialised state, his telegenic appeal and extensive support from the media have proven formidable electoral assets in the run-up to the election. Mr Peña Nieto has campaigned as the new face of the Partido Revolucionario Institucional (PRI) on a platform of structural reforms and opening up the energy sector to private investment. However, he will face a challenging political environment plagued by lingering doubts about the legitimacy of his victory, and continuing social protests from student and other social group movements for more transparency and better job opportunities.

  Felipe Calderón

  The outgoing president has expressed willingness to start working with the new PRI government to make the transition smooth and, in his sixth and last report on the state of the nation, delivered in September, has drawn a roadmap of unfinished issues for the new government (including oil exploration, creating jobs and continuing the war on drugs). The two bills sent to Congress for priority discussion (focusing on labour reform and fiscal responsibility) also highlighted common ground with PRI agenda. On the Partido Acción Nacional (PAN) front, Mr Calderón has lately been engaged in a tussle with the party leader, Gustavo Madero, to determine control of the party and its strategy ahead of the local and municipal elections scheduled for 2013.

  Luis Videgaray Caso

  Mr Videgaray Caso has been a close collaborator of Mr Peña Nieto since he served as secretary of finance, planning and administration from 2005 to 2009 under the president-elect's administration of Estado de México. As general co-ordinator of Mr Peña Nieto's election campaign, Mr Videgaray Caso is widely credited with shaping the new president's winning strategy, and is regarded as one of the rising stars within the PRI. He has been appointed by Mr Peña Nieto to co-ordinate reform initiatives and, in his likely role of head of the President's Office, will continue to play a key role in defining the government agenda and pushing reforms forward, especially that of energy. His sound credentials as a competent administrator and politician will also help to reinforce the government's legitimacy.

  Manlio Fabio Beltrones

  The PRI's leader in the Senate (the upper house of Congress) under the previous administration, a former governor of Sonora and an experienced politician, Mr Beltrones is the key power broker in the PRI and has played a central role in negotiating with the PAN government on structural reform (notably securing the PRI's support for pension and fiscal reforms in 2007). He cleared the way for Mr Peña Nieto's nomination by dropping out of the race in November 2011. As the PRI's leader in the Chamber of Deputies (the lower house), he will be instrumental, together with the PRI's leader in the Senate, Emilio Gamboa Patrón, in negotiating with the opposition and securing support for the government's reform agenda. He is widely deemed to be a member of the PRI's old guard.

  Marcelo Ebrard

  Mindful of Mr López Obrador's continuing influence within the Partido de la Revolución Democrática (PRD), the outgoing mayor of Mexico City (the capital) has been slow to emerge from his shadow. Mr Ebrard's stint as mayor of the capital and his pragmatism in working with the PAN government on a range of issues, including urban crime and the 2009 swine flu epidemic, have burnished his credentials as a competent administrator and moderate figure. Mr Ebrard may represent the ideal candidate for the PRD for of the 2018 election, appealing to centrist voters. However, the elections are a long way away and he is likely to lose visibility unless he finds a strong platform from which to launch his candidature.

  Andrés Manuel López Obrador

  Mr López Obrador remains one of the most popular and, at the same time, divisive politicians in Mexico. After challenging and refusing to accept the results of the 2006 election he had lost by a narrow margin, he was nominated once again as the PRD's candidate for the 2011 election, in which he came second behind Mr Peña Nieto. Although he has made efforts to rebrand himself as a moderate, business-friendly politician during the latest campaign and has appealed the 2012 election result through legal means, he has recently stated that he will not accept the electoral tribunal's decision and will continue to be associated with social protest, cutting a polarising figure within the PRD. He will continue to have a presence in the Mexican political scene in the next six years and may run again in the 2018 election, possibly with a smaller leftist party.

  Elba Esther Gordillo

  The leader of the Sindicato Nacional de Trabajadores de la Educación (SNTE, the main teachers' union and the largest union in Latin America), the powerful "maestra" Elba Esther Gordillo is likely to play a crucial tie-breaking role in the new legislature given that her party, the Partido Nueva Alianza (PANAL), controls the ten seats which the PRI lacks to reach the absolute majority needed to pass most of the reforms on its agenda. Mr Peña Nieto has openly welcomed an alliance with Ms Gordillo during the electoral campaign but such an alliance, if it were to materialise, would be likely to be at the cost of precluding substantial progress on education reform, and possibly also that of labour.

  September 20, 2012

• Structure

  Mexico: Political structure

  Official name

  United Mexican States

  Political divisions

  31 states and the Federal District (Mexico City); states are divided into municipalities

  Form of government

  Presidential, with a constitutionally strong Congress

  The executive

  The president is elected for a non-renewable six-year term and appoints the cabinet

  National legislature

  Bicameral Congress: 128-member Senate, elected for a six-year term, with 64 seats elected on a first-past-the-post basis, 32 using the first minority principle and 32 by proportional representation; 500-member Chamber of Deputies (the lower house), elected for a three-year term, with 300 seats elected on a first-past-the-post basis and 200 by proportional representation

  Regional governments

  State governors are elected for six-year terms; each state has a local legislature and has the right to levy state-wide taxes; municipal presidents are elected for three-year terms

  Legal system

  There are 68 district courts and a series of appellate courts with a Supreme Court; federal legal system, with states enjoying significant autonomy

  National elections

  Next elections July 2015 (congressional), July 2018 (presidential and congressional)

  National government

  The president, Enrique Peña Nieto of the Partido Revolucionario Institucional (PRI), heads a minority government

  Main political organisations

  Government: Partido Revolucionario Institucional (PRI)

  Opposition: Partido Acción Nacional (PAN); Partido de la Revolución Democrática (PRD); Partido Verde Ecologista de México (PVEM); Convergencia; Partido del Trabajo (PT); Partido Nueva Alianza (Panal)

  President: Enrique Peña Nieto

  Cabinet members

  Agrarian reform: Jorge Carlos Ramírez Marín

  Agriculture: Enrique Martínez y Martínez

  Attorney-general: Jesús Murillo Karam

  Communications & transport: Gerado Ruiz Esparza

  Economy: Ildefonso Guajardo Villarreal

  Energy: Pedro Joaquín Coldwell

  Environment & natural resources: Juan José Guerra Abud

  Finance & public credit: Luis Videgaray Caso

  Foreign relations: José Antonio Meade Kuribreña

  Health: Mercedes Juan López

  Interior: Miguel Osorio Chong

  Labour & social welfare: Alfonso Navarrete Prida

  National defence: Salvador Cienfuegos Zepeda

  Naval: Vidal Soberón Salas

  Public education: Emilio Chuayffet Chemor

  Public security: Manuel Mondragón y Kalb

  Social development: Rosario Robles Berlanga

  Tourism: Claudia Ruiz Massieu

  Central bank governor

  Agustín Carstens

  March 06, 2013

• Outlook

  Mexico: Key developments

  Outlook for 2013-17

  • The agenda of the president, Enrique Peña Nieto of the PRI, will focus on achieving progress on structural reform, as well as on addressing high levels of drug-related violence in the most affected states.
  • Common ground with the PAN bodes well for reform prospects in the energy and fiscal sectors. There are signs that the new government is more willing to stand up to entrenched interest groups than its predecessors.
  • Following growth of 3.9% in 2012, we expect GDP to remain broadly stable at around 3.7% throughout the forecast period.
  • Policymakers will continue to run a fiscal deficit, averaging 1.1% in 2013-17. The government will require a comprehensive fiscal reform given the need for additional public spending to finance its policy proposals.
  • Given the still uncertain global outlook, we assume the central bank will hold rates at 4.5% until end-2013 and maintain a dovish stance, supported by the fact that inflation has mostly subsided after a spike in the second half of 2012.
  • Despite a recent appreciation trend, the peso will remain weak relative to other emerging-market currencies, boosting export competitiveness. An ample stock of international reserves will help to smooth out potential volatility.
  • The current-account deficit will widen to 1.4% of GDP by 2017 as import demand grows. The likely opening of the energy sector to private investment will boost FDI after fairly weak inflows in 2009-12.

  Review

  • Just after approval of an education reform, Elba Esther Gordillo, the powerful teachers' union boss, was arrested over alleged embezzlement of funds.
  • The government presented an initiative to regulate state debt. The new scheme would reduce borrowing costs for states and municipalities, while promoting fiscal responsibility at the local level.
  • The lower house passed an important reform of the injunction law that could give regulators more power in taking action against anti-competitive practices.
  • Real GDP grew by 3.9% in 2012, an identical rate to 2011. Despite being the third straight year of solid growth, maintaining the momentum will be the administration's biggest challenge.
  • The current-account deficit reached 0.8% of GDP thanks to a balanced trade account for the first time since 1997. However, FDI plummeted 40% to just US$12.7bn, the lowest level since 1996.
  • A spike in prices during the second half of 2012 appears to be all but overcome as inflation hit just 3.3% in January.

  March 06, 2013

Economy:

• Background

  Mexico: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	115.0	Population growth	1.1
  GDP (US$ bn; market exchange rate)	1,177.1b	Real GDP growth	1.6
  GDP (US$ bn; purchasing power parity)	2,062.5c	Real domestic demand growth	1.2
  GDP per head (US$; market exchange rate)	10,238	Inflation	4.4
  GDP per head (US$; purchasing power parity)	17,939c	Current-account balance (% of GDP)	-0.8
  Exchange rate (av) Ps:US$	13.2b	FDI inflows (% of GDP)	1.8
  a The Economist Intelligence Unit estimates. b Actual. c Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Background: Mexico was governed by the Partido Revolucionario Institucional (PRI) between 1929 and 2000. Once strongly nationalist and interventionist, the leaders of PRI governments in the 1990s embraced free-market policies and economic liberalisation. The presidential victory in 2000 of Vicente Fox, of the centre-right Partido Acción Nacional (PAN), was a milestone in the transition to democratic pluralism, but political effectiveness was hindered by a divided legislature, making political and economic reforms slow to progress. Sluggish growth and soaring violent crime contributed to Mr Fox's successor, Felipe Calderón (PAN), losing to Enrique Peña Nieto of the PRI in the July 1st 2012 presidential election.

  Political structure: The political system is presidential, bicameral and federal (31 states). Mr Peña Nieto has taken office on December 1st 2012 for a six-year term. Under the transition to democratic pluralism, the centre of political power has shifted away from the executive towards the legislature and local governments. State governors wield substantial influence over federal deputies from their districts. A ban on re-election for executive posts and party control of legislators elected by proportional representation limit politicians' accountability and impair policy continuity and implementation.

  Policy issues: Conservative fiscal and monetary policies contain public indebtedness and underpin macroeconomic stability. However, the weakness of the non-oil fiscal revenue base and the shallowness of credit markets leave the authorities with few tools at their disposal to boost demand. There has been limited progress on the legislative agenda, with watered-down fiscal and hydrocarbons reforms passed in 2007-08. Prospects for competitiveness enhancing reforms appear more positive with the new PRI administration, given its larger congressional presence and the likelihood that the PAN will support parts of its agenda although the PRI's association with strong interest groups remains a concern. Persistent constraints on growth include high-cost labour and energy inputs, excessive dependence on the US export market and a deficient education system.

  Taxation: The corporate tax rate stands at 30%. Alternatively, companies can pay a flat-rate tax (IETU) of 17.5%. The top rate of personal income tax is 30%. Tax on royalties is between 15% and 34%. Depreciation allowances range from 5% to 25%, but can be up to 50% on pollution-control equipment. The value-added tax (VAT) rate is 16% (11% in the border area); food products and medicines are exempt from VAT.

  Foreign trade: Import duties range from zero to 35%, with the trade-weighted average tariff at 2.9%. VAT is levied at 15% on all imports, except those to the border region, where a 10% rate applies. In 2012 exports totalled US$370.9bn and imports US$370.8bn, producing a trade surplus of US$163m. The current-account deficit was 0.8% of GDP, the same relative level as in 2011.

  Major exports 2011	% of total	Major imports 2011	% of total
  Manufactures	79.7	Intermediate goods	75.3
  Oil	16.1	Consumer goods	14.8
  Agricultural products	3.0	Capital goods	10.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  US	78.5	US	49.7
  Canada	3.1	China	14.9
  China	1.7	Japan	4.7
  Colombia	1.6	South Korea	3.9

  Download the numbers in Excel

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  March 07, 2013

• Structure

  Mexico: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 06, 2013

• Outlook

  Mexico: Country outlook

  Mexico: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The agenda of the newly appointed president, Enrique Peña Nieto of the Partido Revolucionario Institucional (PRI), continues to take shape, aided by a political pact known as the "Pacto por México" (Pact for Mexico) with the two main opposition parties, the centre-right Partido de Acción Nacional (PAN) and the centre-left Partido de la Revolución Democrática (PRD). The Pact formalises the cross-party commitment to passing up to 95 initiatives in areas in which there is a degree of consensus. Although Mexico's track-record on cross-party co-operation is rather poor, there have been tangible advances over the past three months, notably the passage of a historic education reform in December, and a more recent reform (which is still being negotiated) of the country's notoriously inefficient injunction law, which has traditionally hampered government regulators from effectively challenging anti-competitive practices. That these reforms have garnered near-unanimous support bodes well for the outlook for reforms, although risks remain, as notably highlighted by reservations among certain segments of the PRD towards working with the PRI and the PAN.

  ELECTION WATCH: The next presidential election will be held in 2018, by which time the three main parties are likely to have largely changed their leaderships and put forward a new generation of presidential hopefuls. The PAN faces an uphill struggle, since no particularly charismatic leader has emerged so far. In contrast, the PRD may look to Marcelo Ebrard, the popular and progressive former mayor of the capital, Mexico City, as the ideal candidate to attract the centrist vote, but may face a challenge from his successor, Miguel Mancera, who replaced him last December. Andrés Manuel López Obrador, the divisive PRD candidate in the last two presidential elections, has since left the party and is likely to mount a new challenge using as a platform his own party, which is in the process of being formed from his grassroots movement, the Movimiento de Renovación Nacional (Morena). The 2015 congressional election could be decisive in determining the pace of progress of Mr Peña Nieto's reform agenda in the second half of his term, although most progress is expected in the first two years as cross-party consensus may unravel once election time approaches.

  INTERNATIONAL RELATIONS: The relationship with the US, Mexico's dominant trade and investment partner, and host to around 13m people of Mexican origin, will remain Mr Peña Nieto's overriding foreign policy focus, but it will be complemented by greater attention to Latin America and Asia compared with the last two PAN administrations. Mr Peña Nieto's anti-drugs strategy, as recently laid out, will not differ greatly from that of his predecessor; close co-operation on drug policy with the US is expected in the short and medium term, notwithstanding US fiscal constraints and Mexico's refusal to have US troops based on its soil. The outlook for a comprehensive immigration reform bill in the US that could help to assimilate undocumented Mexican workers appears more positive, as Republicans will be hard pressed to gain support from the Latino community, over 70% of which voted for Barack Obama in the 2012 election. Such a bill is likely to take the form of a clearly defined path to citizenship, but coupled with increased border security in order to appease conservatives. Mexico boasts one of the world's largest networks of trade agreements (comprising links with over 40 countries in three continents), but exports to the US still accounted for 78.5% of total exports in 2011. Efforts to diversify economic linkages will be made notably through the Trans-Pacific Partnership Agreement (TPP), whose negotiations the country officially joined in September, and the Alianza del Pacífico (Pacific alliance) pact with Andean economies, as well as on a bilateral basis with some important trading partners, including Brazil.

  POLICY TRENDS: The government's reform agenda is in full swing, and formal proposals for telecommunications, energy and fiscal reform (all of which are likely to receive PAN support) are expected in 2013, following the labour market and education reforms already approved. However, the risk that the PRI will not push sufficiently comprehensive reforms through Congress lingers, given the strong pressure exerted by entrenched interests and the PRI's own support base, despite recent successes. Persistent problems such as limited credit availability for small and medium-sized enterprises, and low rates of tax collection, will limit investment and long-term growth, as will poor educational performance, which, even after the approval of the recent education reform, will take years to improve. On the monetary front, the Banco de México (Banxico, the central bank) has room to cut interest rates and will maintain a dovish stance on inflation to support growth. Despite global risks and close synchronisation with the US business cycle, the government can count on a two-year US$73bn flexible credit line (FCL) with the IMF that was renewed in December, while a record accumulation of reserves over the past two years will provide greater ammunition to control peso volatility.

  ECONOMIC GROWTH: The Mexican economy grew by 3.9% in 2012, an identical rate to 2011, boosted by strong export performance. The Economist Intelligence Unit expects growth to temper slightly in 2013 as a stronger exchange rate may erode some of the peso's competitiveness, but the external environment remains supportive, particularly if US demand remains relatively stable. Growth is expected to average 3.7% per year in 2013-17, in line with Mexico's potential rate, but the outlook could improve if the new government succeeds in implementing pending reforms that could tackle the country's structural bottlenecks, particularly in terms of domestic market competitiveness, as well as energy. Mexico's close links to the US business cycle will pose significant downside risks if the US economy falters, including through the spillover of a deepening of the euro zone crisis, although this risk has receded significantly from last year. Assuming that US growth does not slow dramatically, Mexico will continue to benefit from the dynamism of its export-based manufacturing sector, which in the past two years has profited from a fairly weak peso and also from rising labour costs in China, thereby helping the sector recoup some of its lost competitiveness. As a result, export volume growth should remain robust in 2013-17, as will that of real imports, leaving net trade as a negative contributor to GDP.

  INFLATION: Consumer price inflation fell to 3.3% in January (from a high of 4.8% in September 2012), the lowest rate since late 2011. A second outbreak of avian flu among fowl stocks is currently being controlled, and should not lead to a spike in inflation as pronounced as that observed during the summer and autumn of 2012. Possible transitory spikes are also unlikely to result in a rate hike by Banxico, which is currently prioritising growth. In the longer term, only modest increases in real wages and ample spare capacity will prevent domestic demand from exerting significant pressure on prices. We retain our baseline assumption that inflation will stabilise within the 2-4% target range throughout the forecast period, in the absence of any unexpected price shocks. Nevertheless, inflation will remain much higher than the OECD average of 2.2%.

  EXCHANGE RATES: Mexico's large external financing requirement and exposure to the US economy make the peso especially vulnerable to shifts in market sentiment, exacerbated by frequent flare-ups of turmoil in the euro zone (and most recently, fears over the US going over the fiscal cliff). The peso has strengthened in recent weeks (to around P12.8:US$1 in late February) but remains weaker than its pre-crisis averages (and weaker than other emerging economy currencies). It is likely to continue its appreciation trend in the next few months if foreign investors remain positive on the US economic outlook and on the ability of the new government to implement a reform agenda. Additionally, a rise in capital inflows seen since 2012 could put pressure on the currency, particularly now that the output gap is largely closed. Banxico will remain committed to controlling currency volatility, aided by solid international reserves (US$163.4bn as of mid-January). From an estimated Ps13.01:US$1 at end-2012, the peso will reach Ps12.82:US$1 by end-2017, which in real terms is still below its 2006 level.

  EXTERNAL SECTOR: Mexico's current-account deficit reached 0.8% of GDP in 2012, the same relative level as in 2011. The trade account ended the year in balance, for the first time since 1997 (longer if one considers that the previous surplus was the result of the 1994/95 devaluation). Nevertheless, we expect the trade balance to swing back into deficit owing to higher import demand, resulting in a current account deficit of 1.4% of GDP by 2017. The services deficit will remain relatively stable as a share of GDP over the forecast period, notwithstanding some improvement in tourism revenue, whereas the income deficit will decline as a share of GDP, owing to higher returns on international reserves and lower interest payments on foreign debt. Profit repatriations from foreign companies operating in Mexico will also be increasingly (albeit only partly) offset by those of Mexican companies operating abroad. The current transfers surplus--which is dominated by workers' remittances from Mexicans overseas--has been falling since 2007 as a share of GDP and will average 2.1% in 2013-17.

  March 11, 2013

• Forecast

  Mexico: Country forecast summary

  Country forecast overview: Highlights

  • The economic agenda of the president, Enrique Peña Nieto of the Partido Revolucionario Institucional (PRI), will focus on key structural reforms in areas such as energy, fiscal policy and telecommunications. His security strategy will not differ significantly from that of the previous administration, and any major progress in reining in violence is unlikely, despite ambitious targets.
  • The PRI's lack of a majority in Congress will force it to negotiate with the opposition, but a political pact with the two main opposition parties bodes well for the approval of those reforms where broad consensus exists. There appears to be greater willingness to challenge some of the country's powerful interest groups, as shown by the recent education reform. However, there is still a risk that certain reforms may be watered down.
  • Even with a conservative fiscal and monetary stance, the policy mix will remain sub-optimal, owing to extremely low non-oil tax collection, although a planned fiscal reform is expected to raise it. The fiscal deficit is expected to narrow throughout the forecast period, but the incoming government will require a comprehensive fiscal reform in order to maintain the necessary level of spending to support its agenda.
  • With domestic demand relatively stable, inflationary pressure under check despite the weak peso, and global financial markets under persistent strain, the Economist Intelligence Unit expects the Banco de México (Banxico, the central bank) to maintain its current dovish stance and hold rates at 4.5% until end-2013 at the earliest, assuming that external conditions remain supportive.
  • GDP growth will remain strong, averaging 3.7% throughout the forecast period, aided by a fairly weak peso (compared with historical averages), which will continue to boost export competitiveness. Growth will remain below that of some regional peers, reflecting weaker trade ties with Asia, and Mexico's high vulnerability to the US business cycle.
  • In spite of some success in diversifying export markets, Mexico's economic fortunes will remain closely tied to those of the US. Import growth will outpace export earnings, resulting in a widening current-account deficit (an average 1.4% of GDP in 2015-17). Foreign direct investment (FDI) has underperformed but should meet financing needs. A large internal market, stable policies, privileged access to the US market and an extensive network of free-trade agreements (FTAs) will ensure steady growth of FDI, but levels will remain below potential owing to poor domestic market competition and weak credit provision.

  

  March 07, 2013

View detailed map

Country Briefing

Land area

1,964,375 sq km

Population

112.5m in 2010, according to estimates from the US Census Bureau

Main towns

Population (m), 2010 (INEGI data for metropolitan areas):

 Mexico City (capital): 20.1

 Guadalajara: 4.4

 Monterrey: 4.1

 Puebla: 2.7

Climate

Tropical in the south, temperate in the highlands, dry in the north

Weather in Mexico City (altitude 2,309 metres)

Hottest month, May, 12-26°C (average daily minimum and maximum); coldest month, January, 6-19°C; driest month, February, 5 mm average rainfall; wettest month, July, 170 mm average rainfall

Languages

Spanish is the official language. Over 60 indigenous languages are also spoken, mainly Náhuatl (1.2m speakers), Maya (714,000), Zapotec (403,000) and Mixtec (387,000)

Measures

Metric system

Currency

Peso (Ps). Average exchange rates in 2011: Ps12.42:US$1; Ps17.29:€1

Time

Six hours behind GMT in Mexico City

Public holidays

January 1st; February 4th; March 16th; Maundy Thursday; Good Friday; May 1st and 5th; September 16th; October 12th; November 20th; December 12th (partial) and 25th

January 11, 2013