Mexico Enters the Global Arena.

Just ten years ago, Mexico was a closed economy with seemingly insurmountable problems. Today, it's a different story. With a population approaching 100 million and a GDP of nearly $500 billion, Mexico is the eleventh largest economy in the world and ranks eighth in world trade. Mexico's economy ended 2000 with growth rising at the fastest pace for almost two decades and unemployment stable at 2.0 to 2.5 percent--record low levels.

Although growth will slow in 2001, Mexico has clearly entered the global economy as a major player and a tough competitor. A decade ago, Mexican companies employed fewer than 2,000 workers overseas; they now employ about 70,000 in more than two dozen countries generating about $8 billion in annual revenue. The world's third largest cement producer, for example, is Cemex SA, a Monterey, Mexico-based company that makes cement not only in Mexico but also in Spain, Trinidad, Panama, Venezuela, Colombia and the Dominican Republic. Mexican multinationals are investing in plants in Eastern Europe and Asia and capturing markets around the globe.

On almost every front, Mexico is aggressively reinventing itself. President Vicente Fox of Partido Accion Nacional (PAN) took office on December 1, raising hopes for democratization and a renewed respect for the rule of law throughout Mexico. Fox has pledged to implement crucial reforms to secure Mexico's fragile hold on world markets and to build a solid footing for future growth. Mexico's current position of strength, however, is predicated on reforms undertaken since the 1994-1995 crisis, remarkable US levels of demand for Mexican exports and the relatively high oil prices of the past year. Fox's success and Mexico's continued growth will depend on the government's ability to rebuild whole sectors of the economy and to reduce Mexico's economic dependency on the US as its primary market.

Accelerated Growth

In the third quarter of 2000, Mexico's GDP rose at an annual rate of 7.0 percent, down slightly from second quarter growth of 7.6 percent and first quarter growth of 7.9 percent, but still notably higher than the 1.8 percent increase for the opening quarter of 1999. (See graph 1.) Labor-intensive and export-oriented industries are growing at an even faster pace. With rising wages and low inflation increasing purchasing power, consumer spending is growing at the fastest rate since 1981, when the government first began measuring spending. The surge in consumer demand has created substantial growth in imports and fueled a troublesome trade deficit in the non-oil sectors.

Growth in 2001 will slow, however, as the slowdown in the US cuts into high demand for Mexico's booming export sector. As export-led growth slows, unemployment will rise and alleviate pressures on labor markets and inflation. Government forecasts put GDP growth at 4.1 percent for 2001; the International Monetary Fund forecasts slightly higher growth of 4.8 percent. Mexican government experts estimate that the economy has to grow by 5.0 percent annually to accommodate new entrants into the workforce. If US demand declines drastically and Mexico fails to find new outlets, Fox's plans for building a lasting foundation for growth could falter.

Export Boom