Mexico was one of the Latin American economies most affected by COVID-19. After an initial prompt recovery, the once positive forecasts for the Mexican economy deteriorated considerably due to the impact of the war in Ukraine. The inflation rate, curbed for most of 2020, has been soaring since the beginning of 2021, fueled especially by the increase of food prices. Amongst the economic indicators projected to worsen due to this economic situation is the share of the population living in poverty.
International tradeMexico has over a dozen free trade agreements (FTAs) with 50 different countries, including several Latin American nations, the European Union, and the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The most important agreement it is part of is the United States–Mexico–Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA) in July 2020. Since NAFTA came into force in 1994, the volume of U.S. goods imports from Mexico under the agreement grew from 31 billion to a record 202.7 billion U.S. dollars in 2019, and trade exports from the U.S. to Mexico have increased over fivefold.
Given the volume of the bilateral trade between these two North American economies, it comes as no surprise that the U.S. became Mexico’s main trade partner. Colombia and Canada follow as the second and third most important partners based on foreign trade balance, with a surplus of 2.03 and 1.8 billion U.S. dollars in favor of Mexico in 2021, respectively. China, the country with which it has an enormous trade deficit, constitutes another major trade partner. Vehicles and machinery, as well as parts and accessories of such articles, are Mexico’s leading exports as well as imports, making the Spanish speaking country one of the most important automotive products exporters in the world.
Government financesThe Mexican state had been registering a budget deficit for years before it peaked in 2022, when the deficit represented almost 4,5 percent of the national GDP. Nevertheless, the budget balance to GDP ratio is estimated to improve in the near future while the national debt, which reached 882 billion U.S. dollars in 2022, is projected to remain fairly stable in relation to the country's economic output.
The oil industry is a key element not only of the national economy, but of government finances too, as oil revenues represent around 22 percent of the general budget revenues. In 2022, the Mexican federal government collected more than 1,481 billion Mexican pesos in oil revenues, obtained mainly through the Mexican state-owned petroleum company Pemex. Regarding public revenue sources, tax revenues accounted for almost 17 percent of the country's GDP according to the latest data, which resulted in Mexico being among the states with the lowest tax-to-GDP ratios in Latin America.