After a difficult few years, Mexico is gaining traction. Mexico is expected to see an average annual GDP growth of 4.4 percent over the next five years, according to a Latin Trade analysis of projections from the International Monetary Fund. That compares with 4.2 percent annual growth in Brazil.
The gap with China on labor costs is now so narrow that many manufacturers are relocating to Mexico, taking advantage of its proximity to the U.S. market. “Chinese labor is going up in price,” said John Price, the founder of Americas Market Intelligence, a market research firm with offices in the United States and Mexico. “Just as important is that oil is going up in price. That makes near-shoring a more logical option.”
In 1993, Chinese labor was one-third that of the cost of Mexican labor. It was only half as expensive in 2009. By next year, labor in China may be only 15 percent cheaper, predicts Frontier Strategy Group (FSG), an advisory firm with headquarters in Washington, D.C.
Transporting goods via trucks and trains is also far less expensive than shipping by sea from China. And orders can be filled in half the time that is generally required when sourcing from China, FSG calculates. That time differential can be crucial when manufacturers want to get a new product quickly to the market.
Last, but not least, Mexico’s membership in the North American Free Trade Agreement (NAFTA) means that import duties are cheaper, the customs process is simple and conflict resolution is more straightforward than with China or Brazil, according to FSG.
Major appliances, larger electronics and electronic components are among the goods that can be manufactured in Mexico competitively, experts say.
Mexico’s future growth will be driven by exports, but also increased local demand, Americas Market Intelligence’s Price asserts. “The biggest source [of growth] is domestic consumption,” he said. Bank lending, which declined after the 2008 global crisis, is picking up, providing credit for purchasing cars and home appliances. And there’s strong potential for future growth. “Mexico is one of the most under-banked economies of Latin America,” Price said. Tourism is also reviving and should help drive future expansion, Price added.
Like the IMF, Pricewaterhouse-Coopers sees Mexico outpacing Brazil — and doing so for decades. The consultancy says Mexico’s GDP will grow at a faster annual rate than Brazil’s through 2050. It predicts that by that year, Mexico’s economy will have pushed past that of Germany, Europe’s largest, to rank seventh worldwide, up from No. 14 in 2010.
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