Mexico Expansion

Mexico

Macroeconomic Prospects for Investment

Mexico represents an ideal target for production expansion for many reasons. The country has both low unemployment and low inflation which provides a foundation of stability in the workforce. Furthermore, the free trade agreements such as NAFTA with the North American countries allows firms to import and export goods and services with relative ease compared to other countries without such agreements. However, at the same time there are also many challenges to be found in the Mexican business environment. For example, there is a lot of corruption in many companies and among many public officials. There are also many social issues that arise from high rates of inequality in the country as well a project labor shortage to meet future demand for labor. This analysis will provide a brief overview of the business opportunities that can be currently found in Mexico.

Contents

Executive Summary

A. Strengths

B. Macroeconomic summary 4

C. Risks 4

2. Macroeconomic Variables 5

A. GDP 5

B. Trade Balance 7

C. Business Confidence Index 9

D. Monetary and Fiscal Policies 9

E. Lending and Currency Exchange 10

F. Employment and Wages 11

3. The Long View – Question of Sustainable Prosperity 12

4. Conclusion 13

Works Cited 14

A. Strengths:

Low inflation & Low unemployment

Stable currency

Free Trade Agreements

Low Debt to GDP ratio

B. Macroeconomic summary

Economic Indicators

2013 Data

Trend

GDP Growth Rate

1.1%

Slowing/Stagnant

Trade Balance

-1.01 USDB

Balanced

Debt to GDP

10.3%

Slight Increase

Inflation

4%

Stable

Business Confidence

53.3%

Stable

Currency Stability

$13.08 USDMXN

Stable

Unemployment

5.7%

Low/Stable

Corruption Index

106 th/177

Persistent Corruption

Global Competitiveness Index

52/144th

Somewhat Competitive

Human Development Index

57/188th

High

Happy Planet Index

22nd

Mid-Range

Open Budget Index

52/100

Some Info Available

C. Risks

Slow GDP growth

Corruption/Public Safety

Labor Shortage (projected)

Income Inequality

2. Macroeconomic Variables

A. GDP

Mexico GDP Constant Prices

Mexico GDP per capita PPP

Mexico GDP Annual Growth Rate

Mexico GDP Growth Rate

Mexico GDP

B. Trade Balance

Trade deficit — imports/exports

Free Trade Agreements

Remittances from USA

C. Business Confidence Index

1. Trend 2004 — 2014

D. Monetary and Fiscal Policies

1. Budget Deficit

1. Government Policies

E. Lending and Currency Exchange

1. Floating Exchange Rate

F. Employment and Wages

1. Unemployment rate

1. Quality of good jobs

1. Income per capita

3. The Long View – Question of Sustainable Prosperity

The growth of the U.S. economy beginning in the mid-1990s perplexed many economists. Most economists did not expect to see such rapid growth based on the economic factors that were present during this period (Rivlin, 2000). There were many factors that were not expected that contributed to the growth such as technological innovation and the strengthening of the dollar against many other currencies. However, at the same time, the success that was experienced during this period still exceeded the expectations of most.

However, even though there are often surprises, the fundamentals of growing or maintaining a healthy economy are pretty steadfast; so long as the right environment exists, markets will flourish, and in that environment individuals and markets will adapt to shocks (Jordan, 2000). The spread of information in a digital age has undoubtedly acted to expedite the movement of resources, but the same kind of trends was evident with inventions such as the printing press. The basics of a sound economy include functioning institutions, legal structures, banking and financial systems, regulations, and projections for future economic growth.

4. Conclusion

The Mexican economy has much strength. Among these are the consistent growth in GDP, low inflation, and a stable currency. Government spending has acted to build much of the necessary infrastructure for future growth and address some of the country’s social issues. However, there must be an adequate legal system in place to protect the business sector, private property, and reduce corruption which is a problem in Mexico. Furthermore, because of Mexico’s relatively low labor rate, in the future there is predicted to be a labor shortage. This will drive up the wage rate in the country and could possibly make other international destinations for cheap labor more attractive. Furthermore, the wealth that has been created in Mexico has not been distributed equally and there is a high level of inequality that causes many social issues. However, on the whole, Mexico is an attractive destination for expansion because of its proximity to the U.S., the free trade agreements that are in place, the stable currency, and the relatively cheap and skilled labor force.

Works Cited

Jordan, J. (2000). How to Keep Growing “New Economies.” Federal Reserve Bank of Cleveland, 1-4.

Rivlin, A. (2000, September 11). The Challenges of Affluence. (T. N. Economists, Interviewer)