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- GDP (PPP):
- $1.8 trillion
- 1.1% growth
- 1.8% 5-year compound annual growth
- $15,563 per capita
- Inflation (CPI):
- FDI Inflow:
Mexico’s economic freedom score is 66.4, making its economy the 59th freest in the 2015 Index. Its score has declined by 0.4 point since last year, with improvements in three of the 10 economic freedoms, including freedom from corruption and labor freedom, offset by declines in the management of government spending, fiscal freedom, and business freedom. Mexico is ranked 3rd out of three countries in the North America region, but its score is well above the world average.
Over the past five years, economic freedom in Mexico has declined by 1.4 points. Deteriorations in the fiscal and regulatory environments have occurred in an environment of slow economic growth despite a reform-minded leadership bent on increasing competition and opening the economy to trade and investment.
Mexico’s economic growth has been driven largely by integration with Canada and the U.S. in NAFTA, but economic performance remains far below potential. Despite a more open economic environment, business regulations continue to undermine economic efficiency. Ensuring more dynamic growth will require broader-based reforms to improve the investment climate and enhance the rule of law.
President Enrique Peña Nieto took office in December 2012 and has made solid progress in reforming the constitution in the areas of education, energy, and telecommunications, but whether new legislation will boost competition is unclear. The government has moved to centralize power further with a fiscal reform that raised taxes and promised a return to deficit spending. A new anti-trust law has increased investor uncertainty. Efforts to reform the criminal justice system and combat endemic corruption that began in 2008 have lagged and are not expected to meet 2016 targets. The recent migration crisis on the border with the United States and the rise of citizen militias in Michoacán highlight weaknesses in Mexico’s security forces. The Peña Nieto administration contends that the homicide rate has declined, but conflicting government findings indicate otherwise. Organized crime is endemic.
Corruption is deeply embedded culturally and remains pervasive at all levels of society, fed by and entrenching the power of monopolists, party bosses, and other mafias. Billions of narco-dollars that enter Mexico each year from the U.S. affect politics, particularly at the state and local levels. Contracts are generally upheld, but courts are inefficient and vulnerable to political interference.
The top individual income tax rate has been raised to 35 percent, and the corporate tax rate is a flat 30 percent. Other taxes include a value-added tax. Tax revenues are equivalent to 10 percent of domestic income, and public expenditures equal 27.1 percent of domestic production. Public debt is equal to 46 percent of gross domestic product.
Previous reforms have enhanced the regulatory framework, but the pace of reform has slowed in comparison to other emerging economies. Completing licensing requirements still takes about three months. Rigid and outdated labor codes create incentives for firms to operate outside of the formal sector. The government has implemented extensive energy and fiscal reforms but must further reduce subsidies and inflation.
Mexico has a 2.2 percent average tariff rate. It has reduced tariff and non-tariff barriers unilaterally and through trade agreements like the Pacific Alliance. A law passed in December 2013 will partially open the energy sector to foreign investment. The financial sector is relatively small and lacks dynamism. Mexico needs to build a deeper and more accessible banking system.