Facts from the World Bank
Mexico, the second largest economy in Latin America, expanded at a strong pace for most of the past year but has started to show signs of slowly decelerating. The economy is exposed to fluctuations in the US economy, global financial markets, and commodity prices. However, Mexico is well positioned to respond to a global slowdown, particularly on the external and monetary fronts.
According to CONEVAL (sp) (National Council on Evaluation of Social Development Policy) the number of Mexicans living in poverty to 2010 is estimated in 52 million people. This implies that around 46.2% of Mexico's total population lives in poverty, mainly in urban areas.
Meanwhile, extreme poverty (those living with less than $978 pesos, US$76) a month in urban areas and less than $684 pesos (US$53) in rural areas reduced slightly from 10.6% to 10.4% (11.7 million people). The fact that extreme poverty held steady over that period is attributed to targeted social protection programs such as the Oportunidades conditional cash transfer initiative and the Seguro Popular universal health insurance.
Economic Overview
Economic growth is forecasted to remain at 3.9% in 2012 and is expected to slow down next year to around 3.6%. Growth is driven by private consumption and investments (boosted by relatively stable inflation and credit growth). Oil prices could decline upon a weaker global economic growth, having an important impact on Mexico’s public finances next year. Manufacturing exports continue to have a strong performance at annual growth rates of above 10%, led by the automotive sector which accounts for over a quarter of exports.
The uncertainty in the U.S. and the global outlook represent the main risk factors. Mexico could be significantly affected by subdued economic activity in the U.S. due to the expected fiscal drag. External financing needs are manageable. This is due to a moderate current account deficit, healthy levels of international reserves, a Flexible Credit Line with the IMF, and prudent public debt management.
The flexible exchange rate is a first, strong shock-absorber. The flexibility of the exchange rate regime allows the currency to depreciate rapidly. This helps to absorb the impact of a reversal in net capital flows. The banking system is sound. Foreign banks’ subsidiaries enjoy strong capitalization and liquidity ratios.
International reserves reached a record-high of US$161.3 billion in 2012 as of September 2012. Compared to 2011, reserves increased by US$18.8 billion. The Central Bank built up its reserve buffers through the monthly sale of dollar options, net foreign exchange receipts from PEMEX and public external debt placements. By end-2011, the Central Bank adjusted its intervention mechanism and reintroduced a rules-based foreign exchange mechanism of daily auctions. The measure is aimed at enhancing liquidity conditions in the foreign exchange market and therefore reducing volatility.
Political Overview
In July 2012 with 38.15% of total votes, Mexicans elected Enrique Peña Nieto as new President of Mexico from Partido Revolucionario Institucional (PRI) for the period 2012-2018. The election renewed both houses of Congress (128 Senators and 500 Congressmen).
Mexico chaired the G20 in 2012. By assuming the annual Presidency of the G20 Mexico, the second emerging country and the first in Latin America to do so, Mexico confirms its role as a responsible and influential actor, both regionally and globally.
Mexico’s priorities for the G-20 agenda are:
•Economic stabilization and structural reforms;
•Strengthening the financial system and fostering financial inclusion;
•Improving the international financial architecture;
•Enhancing food security and addressing commodity price volatility; and
•Promoting sustainable development, green growth and the fight against climate change.