In 2022, Mexico was the United States’ second largest trading partner in goods and services. Bilateral trade grew 618 percent from 1994-2022, and Mexico is the United States’ second largest export market. It remains one of our most important investment partners. The United States is Mexico’s top source of foreign direct investment (FDI) with a stock of USD 207 billion (2021 per the International Monetary Fund’s Coordinated Direct Investment Survey, table 3).
The Mexican economy averaged 2.1 percent growth in Gross Domestic Product (GDP) from 1994 to 2022 and recovered to pre-pandemic levels in 2022, growing 3.1 percent. Exports to the United States grew 16.9 percent thanks to the U.S. economic recovery. Still, high inflation–mainly in food prices–and tighter monetary policy could affect Mexico’s purchasing power in 2023. Inflation surpassed the Central Bank of Mexico’s (Banxico) confidence interval of 3 percent ± 1 starting March 2021 and reached 5.8 percent as of May 2023. In addition, any potential deceleration of the U.S. economy could affect demand for Mexican exports. Mexico’s conservative fiscal policy resulted in a primary deficit of 0.5 percent of GDP in 2022, and the public debt decreased to 49.4 percent from 50.8 percent of GDP in 2021. Banxico committed to upholding the central bank’s independence.
The United States-Mexico-Canada Agreement (USMCA) entered into force July 1, 2020, with Mexico enacting legislation to implement it. The Government of Mexico has not issued implementing regulations in several areas, complicating the operating environment for the telecommunications, financial services, and energy sectors. The Government of Mexico considers the USMCA to be a driver of recovery from the COVID-19 economic crisis given its potential to attract more foreign direct investment to Mexico.
Investors report the lack of a robust fiscal response to the COVID-19 crisis, regulatory unpredictability, a state-driven economic policy, and the shaky financial health of the state oil company PEMEX have contributed to ongoing uncertainties. The three major ratings agencies (Fitch, Moody’s, and Standard & Poor’s) maintained lower-medium investment grade ratings on Mexican sovereign debt. In July 2022, Standard & Poor’s upgraded the outlook from negative to stable but maintained its BBB sovereign rating for Mexico. Moody’s downgraded Mexico in July 2022 to Baa2 with a stable outlook. Fitch reaffirmed its BBB- sovereign rating in November 2022. Moody’s downgraded credit ratings for PEMEX debt from non-investment grade speculative (Ba3) in July 2021 to highly speculative in January 2023 (B1). Fitch reaffirmed its non-investment grade speculative rating (BB-) for PEMEX, while S&P maintained a lower medium investment grade rating (BBB) citing the likelihood of extraordinary government support should the company suffer financial distress.
Uncertainty about contract enforcement, insecurity, informality, and corruption continue to hinder sustained Mexican economic growth. Efforts to reverse the following reforms further increase uncertainty: (1) 2013 energy reforms, including the March 2021 changes to the electricity law (found to not violate the constitution by the supreme court on April 7, 2022, but still subject to injunctions in lower courts); (2) the May 2021 changes to the hydrocarbon law (also enjoined by Mexican courts), and; (3) the September 2021 constitutional amendment proposal prioritizing generation from the state-owned electric utility CFE. These factors raise the cost of doing business in Mexico.
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Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros
