Economy of Mexico

Economy of Mexico

Project Report

By- MBA (IB) - 2010-13Group 7, Section B

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Economy of Mexico

EXECUTIVE SUMMARY

The economy of Mexico is the 13th largest in the world in nominal terms and the 11th by purchasing power parity, according to the World Bank. Mexico has a free market economy with a strong export sector, but this has not always been the case. The transformation of Mexico into an export-based economy began in the late 1980s when the government started to liberalize its trade policy and adopt economic reform measures.

One of the more distinctive aspects of the Mexican economy is its strong ties to the economic cycle of the United States, making it very sensitive to economic developments in the United States. Mexico’s economy is part of the North American Free Trade Agreement (NAFTA), a trilateral trade bloc in the region comprising of the US, Canada and Mexico. Furthermore, over 90% of their trade falls under twelve free trade agreements spanning more than 40 countries worldwide

Following a deep recession associated with a strong global downturn, Mexico is experiencing a robust recovery, with GDP growth of 5½ per cent in 2010 and 4½ per cent in 2011. Export growth is expected to slow after the exceptional rebound of 2010, but stronger domestic demand should keep the recovery on track. Several labor market indicators have improved, although unemployment is decreasing only slowly.

We talk about key economic Indicators, Trade Trends and economic Policies which makes Mexico’s economy a potential Economy.

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Contents

1) Introduction………………………………………………………………………………….4-5

2) Key Economic Indicators…………………………………………………………………..6

3) Trade Review and Highlights……………………………………………………………..7

4) Economy Policy Review…………………………………………………………………..8-9

5) Comparative Advantage in Trade…………………………………………………10-13

6) NAFTA –A Boon for Mexico……………………………………………………………13-16

7) Mexico Merchandise Trade……………………………………………………………….16

8) Trade Policy Review…………………………………………………………………………17-18

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Economy of Mexico

Introduction

Mexico has a population of slightly over 100 million people making it the most Populous Spanish-speaking country in the world and the third most populous country in the Western Hemisphere. Based on a gross domestic product (GDP) of $1.167 trillion in 2010 (about six percent of U.S. GDP), Economic conditions in Mexico are important to the United States because of the close trade and investment interactions, and because of other social and political issues that could be affected by economic conditions, such as immigration.

The economy contains rapidly developing modern industrial and service sectors, with increasing private ownership. Recent administrations have expanded competition in ports, railroads, telecommunications, electricity generation, natural gas distribution and airports, with the aim of upgrading infrastructure. As an export-oriented economy, more than 90% of Mexican trade is under free trade agreements (FTAs) with more than 40 countries, including the European Union, Japan, Israel, and much of Central and South America. The most influential FTA is the North American Free Trade Agreement (NAFTA), which came into effect in 1994, and was signed in 1992 by the governments of the United States, Canada and Mexico. In 2006, trade with Mexico's two northern partners accounted for almost 90% of its exports and 55% of its imports. Recently, the Congress of the Union approved important tax, pension and judicial reforms, and reform to the oil industry is currently being debated. According to the Forbes Global 2000 list of the world's largest companies in 2008, Mexico had 16 companies in the list.

The Mexican economy is both complex and very much in transition. There are at least 3 transitions that are worth noting. The first is the economy's transition from an agricultural economy to an industrial one. In 1940, agriculture accounted for 19 percent of GDP and employed 65 percent of the labor force. However, in 1999 agriculture accounted for 5 percent of GDP and employed 23 percent of the labor force. In contrast, manufacturing and services accounted for 88 percent of GDP in 1999 and employed approximately 70 percent of the labor force. The most important catalyst for such a dramatic change is Mexico's involvement in World War II in the early 1940s. As a member of the Allies, Mexico began supplying its fellow Allies with war equipment and supplies and, because of the decreased availability of consumer goods from other nations, supplied its own population with consumer goods as well. Since then, both government and private citizens have furthered Mexico's industrial development.

The second transition that characterizes the Mexican economy is a shift from a closed to an open economy. Although after World War II the government pursued a successful policy of industrializing the economy, that policy was buttressed by efforts to keep the Mexican economy closed. For example, the

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government pursued a policy of encouraging Mexican manufacturers to engage in import substitution. Part of that policy required that the government set up barriers (such as tariffs) to the importation of those same items. All of this changed in 1985 when the government decided to pursue a policy of promoting Mexican exports and decreasing barriers to imports into Mexico. This commitment to an open economy was crystallized when Mexico signed the North American Free Trade Agreement (NAFTA) in 1992. Under that agreement, Mexico has committed itself to eliminating the trade barriers that exist between it and the United States and Canada by the year 2009. At the time Mexico signed NAFTA, its economy was dominated by small to mediumsized companies. NAFTA opened the door for large U.S. and Canadian companies to open branches or offices in Mexico, which would bring more jobs to the country.

The third transition that characterizes the Mexican economy is a change from an economy that pursues public ownership to one that pursues private ownership. In the 1970s and 1980s the government assumed a large amount of foreign debt and much of that money was used to purchase businesses—many of which were run inefficiently—by the government. The vast majority of these businesses were sold by the government in the 1990s. Although Mexico continues to wrestle with its foreign debt, which as of 1999 was US$161 billion, its debt is now a reasonable amount of debt when compared to that of other Latin American countries. For instance, Mexico's economy is 5 times as large as Venezuela's, but Mexico has only 4 times the amount of debt that Venezuela has.

Currently, the Mexican economy is vibrant, with fully functioning agricultural, services, industry, and banking sectors. Mexico has demonstrated to the world that it can sustain itself. But Mexico continues to be plagued by persistent problems of the poverty and underemployment of a large segment of its population. These problems pose the greatest challenges to the country's economic future.

Key Economic Indicators

Central bank Bank of Mexico International Reserves US$ 113.725 billion (Source: IMF; Data updated: November 2010)Gross Domestic Product – GDP

US$ 1.167 trillion (2010 estimate)

GDP (Purchasing Power Parity)

1.658 trillion of International dollars (2010 estimate)

Real GDP growth2000 2001 2002 2003 2004 2005 2006

6.60% -0.20% 0.80% 1.70% 4% 3.20% 4.90%

GDP (PPP) - share of world total

1980 1990 2000 2010 2015**2.94% 2.59% 2.48% 2.09% 2%

GDP - composition by sector

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Economy of Mexico

agriculture: 4.30%Industry: 32.90%services: 62.80%

Inflation2008 2009 2010 2011*

5.10% 5.30% 4.20% 3.60%Unemployment Rate

2008 2009 2010 2011*4% 5.50% 5.40% 4.50%

Public debt (General government gross debt as a % of GDP)2007 2008 2009 2010 2011*

38.20% 43.30% 44.60% 42.70% 42.30%

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Economy of Mexico

Trade preview and Highlights

Mexico was the 16th largest exporter of goods in the world, and the 38th largest exporter of services products. Of the very diverse mix of products exported by Mexico, top exports in 2008 included manufactured goods of the maquila industry (cars, televisions and telecom equipment), oil and oil products, silver, fruits, vegetables, coffee, and cotton. Major imports included telecom equipment, car parts (for assembly and repair), metalworking machines, steel mill products, agricultural machinery, electrical equipment, aircraft, and aircraft parts.

Mexico is the United States’ second-largest export market and third-largest trading partner. Top U.S. exports to Mexico include electronic equipment, motor vehicle parts, and chemicals. Trade matters are generally settled through direct negotiations between the two countries or addressed via World Trade Organization (WTO) or North American Free Trade Agreement (NAFTA) formal dispute settlement procedures. The most significant areas of friction involve agricultural products as well as cross-border trucking. Mexico is an active and constructive member of the World Trade Organization, the G-20, and the Organization for Economic Cooperation and Development. The Mexican Government and many businesses support a Free Trade Area of the Americas.

Current account balance US$ 10.5 billion (2009 estimate)(After 2008)Current account balance by percentage of GDP

0.9% of GDP (2009 estimate)

Exports as percent of GDP (Exports of goods and services)

26.6% (2009)

Shares in world total merchandising export 1.84%Shares in world total commercial services export

0.46%

Total exports US$305.9 billion f.o.b. (2008 estimate)Export commodities manufactured goods, oil and oil products, silver,

fruits, vegetables, coffee, cotton

Total importsUS$305.9 billion f.o.b. (2008 estimate)

Import commodities metalworking machines, steel mill products, agricultural machinery, electrical equipment, car parts for assembly, repair parts for motor vehicles, aircraft, and aircraft parts

Exports major partners US 82.2%, Canada 2.4%, Germany 1.5% (2007)

Imports major partners US 49.6%, China 10.5%, Japan 5.8%, South Korea 4.5% (2007)

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Economy of Mexico

Economic Policy Review

In the late 1980s and early into the 1990s, the Mexican government implemented a series of measures to restructure the economy that included steps toward trade liberalization. For many years, Mexico had protectionist trade policies to encourage industrial growth in the domestic economy. The 1980s were marked by inflation and a declining standard of living. Repercussions of the 1982 debt crisis in which the Mexican government was unable to meet its foreign debt obligations were a primary cause of the economic challenges the country faced in the early to mid-1980’s. Much of the government’s effort in addressing the challenges was placed on privatizing state industries and moving toward trade liberalization. Efforts included privatization of sea ports, railroad, telecommunications, electricity, natural gas distribution and airports. The negotiation and implementation of NAFTA played a major role in Mexico’s changing economic policy in the early 1990s.

Mexico’s economic reforms initially attracted a large amount of private foreign investment, but by 1993 the inflow of foreign capital began to slow down. The combination of macroeconomic policies at the time, which led to an overvalued exchange rate, and domestic political uncertainty helped drive down the flow of capital into the country. The decrease in capital inflows and the low levels of international reserves held by the Mexican government led to a peso devaluation inMarch 1994. Later that year, foreign exchange reserves continued to fall, domestic government debt increased, and the Mexican central bank had limited dollar reserves to support the current peso rate

By the end of 1994, Mexico faced a currency crisis, putting pressure on the government to abandon its previous fixed exchange rate policy and adopt a floating exchange rate regime. As a result, Mexico’s currency plunged by around 50% within six months, sending the country into a deep recession.32 Several factors influenced the decision to float the peso: overspending in the economy had generated a significant current account deficit; the Mexican government had accumulated large levels of debt with insufficient reserves; and the banking system was facing a crisis due to overexposure.33 Mexico’s finance minister at the time, Guillermo Ortiz, stated later that Mexico had “no choice” but to float the peso because the government had run out of reserves.

In the aftermath of the 1994 devaluation, Mexican President Ernesto Zedillo took several steps to restructure the economy and lessen the impact of the currency crisis among the more disadvantaged sectors of the economy. The goal was to create conditions for economic activity so that the economy could adjust in the shortest time possible. The United States and the IMF assisted the Mexican government by putting together an emergency financial support package

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of up to $50 billion, with most of the money coming from the U.S. Treasury. The Zedillo Administration wanted to demonstrate its commitment to fulfill all its financial obligations without a default on its debt by adopting tight monetary and fiscal policies to reduce inflation and absorb some of the costs of the banking sector crisis. The austerity plan included an increase in the value-added tax, budget cuts, increases in electricity and gasoline prices to decrease demand and government subsidies, and tighter monetary policy.The peso steadily depreciated through the end of the 1990s, which led to greater Exports and helped the country’s exporting industries. However, the peso devaluation also resulted in a decline in real income, hurting the poorest segments of the population and also the newly emerging middle class. NAFTA and the change in the Mexican economy to an export-based economy helped to soften the impact of the currency devaluation. While Mexico’s economy as a whole has since recovered, the country has experienced little economic expansion on a per capita basis. Real wages and per capita GDP fell considerably after the crisis and have only justrecovered to their old level by 2004.

After a real decline in GDP of 6.22% in 1995, the Mexican economy managed to grow 5-6% in each of the three years to 1998. The combination of a stronger peso and the slowdown in the U.S. economy in 2001, which worsened after the September 11 terrorist attacks, hit Mexico’s economy hard. Real GDP growth dropped from 6.2% in 2000 to -0.16% in 2001. Improving economic conditions in the United States helped Mexico’s economy improve as well.

The financial crisis of 2008 began on the trading floors of Manhattan, but the biggest tremors were felt in the desert south of the Rio Grande. Mexico suffered the steepest recession of any country in the Americas, bar a couple of Caribbean tiddlers. Its economy shrank by 6.1% in 2009 The state’s output fell by 12.3% in 2009 as orders dried up.To cope up with the recession ,Bank of Mexico, which happens to be an independent central bank, has dropped its interest rate very low. Mexico is more focused on making its national economy stable. Fiscal measures, which have been taken, include decrease in energy prices, extra investment in roads, railways and oil wells. It also extends medical cover, welfare assistance and provisional jobs to those who are unemployed. It is expected that this Mexico economic policy will help in prevention of recession. Government guarantees credit lines and offers loans to small business houses. Stabilization of value of peso has been ensured. This was done after central bank made an expenditure of $15 billion of its reserves.

To reduce social impact of recession, government forwarded some fiscal measures that would save jobs of more than 150,000 people. Steps will be taken to deal with unemployment problems. It has been estimated that public debt is about 30 percent of GDPFiscal consolidation is already underway. After conducting a fiscal stimulus in 2009, the government is in the process of tightening its fiscal policy stance, raising taxes and containing

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Economy of Mexico

expenditure growth. This reduced the public sector net borrowing requirement, a measure of the combined deficit of the federal government and its public enterprises, from around 5% of GDP in 2009 to 4½ per cent of GDP in 2010. The government intends to limit spending growth and reduce its public sector borrowing requirement to around 3 per cent of GDP in 2011 and 2½ per cent in 2012.

Revealed Comparative Advantage in Export

Mexico exports were worth 31487 Million USD in August of 2011. Mexico is the biggest exporter in Latin America. Mexico’s major exports are: manufactured goods, oil and oil products, silver, fruits, vegetables, coffee and cotton. Mexican trade is fully integrated with that of its North American partners: 82% of Mexican exports are with the United States.

http://www.tradingeconomics.com/mexico/exports

Mexican Exports to U.S.

As an export orientated country, Mexico is the 15th largest exporter in the world. They are also the United States' second largest export market, making about 12.21 percent of U.S. total exports in 2009. With the signing of the North American Free Trade Agreement (NAFTA) in 1994 with the United States, Mexico's trade economy is heavily linked to the United States', with as high as 80.5 percent for Mexico's exports going to the U.S.

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Economy of Mexico

Tin, gold & sugar are fast-growing Mexican exports to the U.S. while tobacco, coins & nuclear fuels are the fast-growing imports into Mexico from America. Mexico exported US$198.3 billion worth of merchandise to the United States in 2006, up 16.5% from 2005 and up 47.3% in just 4 years. Mexican imports from the U.S. rose 11.5% to $134.2 billion in 2006, up 37.6% since 2002.

http://daniel-workman.suite101.com/mexicos-top-exports-imports-a25194

In terms of the merchandise flow between the two countries, America’s trade deficit with Mexico was $64.1 billion in 2006, up 72.5% from 2002. The U.S. trade deficit with Mexico increased 28.8% in 2006 from 2005 – up from the 10.4% deficit increase in 2005 from the year earlier.

Of the $198.3 billion in American imports from Mexico in 2006, the following product categories had the highest values.

Crude oil …US$30.3 billion (15.3% of Mexico to U.S. exports, up 31.8% from 2005)

Car parts & accessories … $21.8 billion (11%, up 5.7%) Video equipment (e.g. DVD players) … $14.6 billion (7.4%, up 38.3%) Passenger cars … $14.2 billion (7.2%, up 31.2%) other complete & assembled vehicles … $9.6 billion (4.8%, up 20.2%) Electrical apparatus & parts … $8.5 billion (4.3%, up 15.1%) Telecommunications equipment … $7.0 billion (3.5%, up 41.2%) Engines & parts … $5.0 billion (2.5%, up 5.6%) Computers … $4.3 billion (2.2%, up 3.7%) Miscellaneous household goods (e.g. clocks) … $4.2 billion (2.1%, down 6%)

Mexico’s Opinion about NAFTA in a glimpse

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Economy of Mexico

Mexico Balance of Trade

Mexico reported a trade deficit equivalent to 806 Million USD in August of 2011. Mexico is the biggest exporter and importer in Latin America. Mexican trade is fully integrated with that of its North American partners: close to 86% of Mexican exports and 50% of its imports are traded with The United States and Canada.

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http://www.tradingeconomics.com/mexico/balance-of-trade

Revealed NAFTA –A Boon for Mexico

http://worldsavvy.org/monitor

Discussions concerning a proposed North American Free Trade Agreement (NAFTA) began in the early 1990s among the United States, Canada, and Mexico. The proposal called for phasing out trade tariffs among the three countries in order to open up their borders to regional free trade.

Currently, NAFTA encompasses about 440 million people and is one of the world’s largest free trade zones.

In a free trade scenario, the market determines who the producers of certain goods and services are, and who the buyers are. Theoretically, each country benefits from “comparative advantage” – countries produce they can produce most efficiently and at the lowest costs, and buy from other countries what those countries can produce better or cheaper.

The concept free trade is premised on the unimpeded flow of imports and exports. For most of modern economic history, empires and countries protected their own domestic producers and markets from imports by erecting trade barriers. Trade barriers can be in the form of:

Tariffs, which are taxes on goods imported from other countries that artificially raise the price of those goods and therefore make domestically produced goods more competitive.

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Subsidies, which are government grants paid to domestic producers so that those producers can charge less for their products, and therefore be more competitive.

Tax breaks for domestic producers that lower their taxes and thereby decrease their costs.

Labeling and packaging requirements and standards for imported goods those are expensive for foreign producers to implement, and add a cost not borne by domestic producers.

Import quotas which place limits on the amount of imports of certain goods allowed into a country.

In the absence of protectionist policies like those described above, truly free trade would result in a world where developed countries (such as the US and Canada) would buy their agricultural and basic manufactured goods from those countries that can produce them more cheaply (developing countries such as Mexico where land and labor are less expensive). Developed countries would then turn their attention to producing more technologically sophisticated goods and services that they can produce more efficiently with their educated workers, advanced infrastructure, and access to innovation.

NAFTA 15 Years Later: The Balance Sheet

NAFTA was supported in Mexico because intra-continental free trade, in theory, would allow the country to take better advantage of its greatest economic asset: its geographical proximity to the largest economy in the world, the United States, as well as to another economic power, Canada. Facilitating unfettered access to these countries was seen as critical to bringing the benefits of globalization to Mexico. Goods that could be produced more cheaply in Mexico could be exported to US and Canadian consumers; American and Canadian technology and investment would flow to Mexico.

Accomplishments:

Trade among the three countries did, in fact, increase dramatically, 227% between 1993 and 2008, according to the World Bank. Trilateral trade currently accounts for $15.3 trillion in goods and services annually.

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Economy of Mexico

Mexico’s share of this trade, which had previously been dominated by US-Canadian trade, also increased dramatically. Mexico’s imports from Canada rose 704%; its exports to Canada rose by 482%. Mexico’s imports from the US rose by 236%; its exports to the US rose by 440%.

Since the implementation of NAFTA, all three countries have experienced GDP growth. The US and Canadian economies each grew by 53%; the Mexican economy grew by 51%. (Remembering that percentage growth of larger economies like the US and Canada yields much greater absolute gains than percentage growth in an economy like Mexico – they started at dramatically different levels, pre-NAFTA).

Disappointments:

The Mexican economy did not grow as much as expected. Inequality and poverty have persisted. Slow wage growth for workers continues to harm domestic consumption and overall domestic growth.

Many had hoped that NAFTA would decrease immigration from Mexico to the United States by creating Mexican jobs. This has not been the case, with over 500,000 Mexican immigrants entering the US every year.

Technological advances have come slowly to Mexico. Most industry is still in the low-value added sector, which means sophisticated parts are manufactured elsewhere and shipped to Mexico for assembly only. This results in only a small part of the profit from these goods remaining in Mexico.

Mexican workers remain under-educated and under-trained, relegating Mexican industry to a less lucrative place in the global supply chain.

Mexican agricultural exports have grown more slowly than anticipated, largely due to competition from large agricultural enterprises located inside the United States and protected by US government subsidies. Mexican farmers retain an advantage in crops that are hand-picked, such as avocados and strawberries, but many farmers, especially those producing corn, have been hurt by the dismantling of tariffs that protected them from cheap subsidized US imports.

Some would say that the intensification of the drug war is to some extent linked to NAFTA – opening borders to legitimate trade have also facilitated trafficking in illegal substances and guns.

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Economy of Mexico

Problems with the Pact:

Free trade can be painful, as competition eliminates some kinds of jobs. NAFTA lacks many of the cushioning measures for populations which would not benefit from globalization. These include social safety nets for the displaced and unemployed, as well as labor standards for workers.

There are few provisions within NAFTA for the mediation of trade disagreements.

NAFTA’s focus is on eliminating tariff barriers; it neglects other protectionist measures. For example, US agricultural subsidies have gone unaddressed and continue to affect the competitiveness of Mexican exports.

Implementation has been uneven. For example, a provision designed to allow Mexican trucks to deliver products in the US was rejected by the US Congress in early 2009.

Both labor and environmental standards are largely missing from NAFTA, leading to unsafe working conditions in factories on both sides of the US-Mexico border and to environmental degradation in border towns where large populations have settled.

Mexico Merchandise Trade

http://stat.wto.org/CountryProfile/

MERCHANDISE TRADE Value Annual percentage change2009 2000-2009 2008 2009

Merchandise exports, f.o.b. (million US$) 229 712 4 7 -21Merchandise imports, c.i.f. (million US$) 241 515 3 10 -24

2009 2009Share in world total exports 1.83 Share in world total imports 1.90Breakdown in economy's total exports Breakdown in economy's total imports By main commodity group (ITS) By main commodity group (ITS)

Agricultural products 6.8 Agricultural products 8.6Fuels and mining products 15.8 Fuels and mining products 9.0Manufactures 75.1 Manufactures 80.4

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Economy of Mexico

By main destination By main origin1. United States 80.7 1. United States 48.12. European Union (27) 5.1 2. China 13.93. Canada 3.6 3. European Union (27) 11.64. Colombia 1.1 4. Japan 4.95. Brazil 1.1 5. Korea, Republic of 4.7

Trade Policy Review by World Bank

http://info.worldbank.org/etools/wti/docs/Mexico_brief.pdf

According to the latest Trade (MFN) Tariff Restrictiveness Index (TTRI),1 Mexico scored 13.1 percent and was ranked 111th out of 125 countries (where 1stis least restrictive) With respect to agricultural imports, its TTRI of 27.7 percent is more than double that of the average Latin America and Caribbean (LAC) country and upper-middle-income country. The 2008 simple average MFN tariff is a high 12.7 percent, down from an average of around 18 percent in 2000–04, but still higher than its regional and income comparators (9.3 and 9 percent, respectively). It’s simple average MFN tariff on agricultural products is high at 23.5 percent, while its tariff on non-agricultural products is 11.5 percent. Mexico’s 2008 maximum applied tariff (including ad valorem equivalents of specific duties) is 306 percent, and applied to some agricultural products. The trade policy space, as measured by the gap between bound and applied tariff levels (the overhang), is 23.4 percent. While it was the 12thlargest initiator of anti-dumping investigations over the period of 1995–2008, Mexico has restrained their use lately, initiating only one antidumping measure in 2008 and one in 2009. The financial sector is fully open to banks from countries with which Mexico has free trade agreements, and recent administrations have expanded competition and openness in seaports, railroads, telecommunications, electricity generation, natural gas distribution, and airports, though limits on foreign participation still exist. It ranks 52nd among 148 countries in its commitment to services liberalization, as measured by the GATS commitment index.

As a result of the food price crisis, Mexico adopted various trade measures in 2008. It reduced import tariffs on powdered milk by half; removed tariffs on wheat, rice, maize, sorghum, beans, and fertilizers; and, in agreement with the private sector, set price controls on 150 food items until the end of 2008. To address the global recession, it took unilateral measures to stimulate competitiveness, including the reduction of tariffs on 8,357 tariff line items, which represent 69 percent of Mexico’s import tariffs. The reduction covers 22 sectors in 70 chapters that exclude

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agriculture. By 2013, tariffs on these products will go down to an average of 4.3 percent when compared to 10.4 percent in December 2008, and 63 percent of its national tariff lines will be duty free.2 By April 2009, it had already eliminated tariffs on imports of used parts, but it imposed restrictions on imports of diesel trucks. In response to the United States’ suspension of a pilot program to implement NAFTA’s provision to liberalize land transportation services, Mexico took legal retaliatory measures and suspended preferential treatment on 89 tariff line products coming from the United States. In May 2009, Mexico put out a stimulus package of US$21 billion that included tourism sector support.

Trade Outcomes

Given the recessionary environment in the United States, to which Mexico exports almost three quarters of all exports, exports have suffered. In 2008, Mexico’s real growth (in constant 2000 U.S. dollars) in total trade of goods and services decelerated to 2.6 percent, compared to 6.6 percent in 2007, and is expected to shrink by 13.1 percent in 2009. Export growth slowed to 1 percent in 2008, compared to a 6.2 percent growth in the previous year, while imports grew at 4.1 percent in 2008 compared to 7 percent in 2007. Both exports and imports are expected to shrink by 13 percent in real terms in 2009.Nominal dollar export growth was 7.2 percent for goods and 5.8 percent for services in 2008, while nominal import growth was 9.4 and 5.2 percent, respectively. The impact of the recession can be traced to the fourth quarter of 2008, when year-on-year exports actually declined by 14 percent compared to a 15 percent positive growth in Q4 2007 and an average 15 percent positive growth over Q1–Q3 2008.5 The situation worsened in Q1 2009, with exports declining by 29 percent. A similar trajectory was followed by imports, though this would also reflect a smaller oil import bill. Mexico’s trade share in GDP is around 59.3 percent, lower than its regional and income group comparators. Remittances are important, and brought in US$27.1 billion to the economy. However, due to the lower employment opportunities in the United States, remittances dropped by US$800 million, falling to 2.4 percent of GDP in 2008 from 2.7 percent in 2007. FDI inflows accounted for 2 percent of GDP in 2008.

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