Can the Mexican Economy Defy the Odds?

Mexico's economy defied COVID-19's blow, showing strong recovery. Yet challenges like informality persist. Experts see 2023 as a year of consolidation, but global instability and 2024 elections cloud the future. Could Mexico rise to the top ten economies, or will external forces derail its progress?

Can the Mexican Economy Defy the Odds?
A bustling Mexican marketplace filled with vendors and customers.

In Aesop's fable, the tortoise wins because slow and steady wins the race. Mexico's economy, it seems, has taken a page from the wise, old reptile's book. After a brutal tumble in 2020—thanks to a little something called the COVID-19 crisis—Mexico's rebound has been anything but flashy. But beneath that seemingly modest exterior lies resilience, adaptability, and a quiet confidence that's making the rest of the world take notice.

Let's talk numbers, the dry language that hides interesting stories. In 2021, Mexico's economy surged 6%. Solid, right? But then, things started to…slow down. A 3.9% growth in 2022? Less impressive. Now, 2023 ends with an even more restrained 3.1%. For those who love a meteoric rise story, Mexico might seem to disappoint. However, as Ernesto Bravo Benítez from UNAM's Economic Research Institute points out, there's more to the picture:

“While the world was fretting over recessions and downturns, Mexico even outpaced the mighty United States in 2023. Please keep in mind those 679 thousand jobs created, the minuscule 2.5% unemployment rate, and a flood of foreign investment that would make even a dragon blush.”

The Shift Beneath the Surface

So, what's Mexico's secret sauce? Turns out, it's a lot like your grandma's favorite stew recipe—simple but with a depth of flavor. Mexico has been steadily shifting toward a service-based economy, a clever move considering services now account for about 60% of its GDP.

This isn't to say there aren't challenges. Informality, that shadowy twin of many developing economies, still dogs Mexico, with over half its workforce in the informal sector. As Bravo Benítez notes, “We are still living with echoes of the neoliberal past…it's a blend of the old and the new.”

Of course, Mexico isn't completely shielded from global storms. Like a sailor weathering choppy seas, Mexico has to carefully navigate the troubled waters of inflation, rising interest rates, and those ever-pesky political currents caused by its northern neighbor. But there's a stubborn optimism there, a hunch that Mexico's tortoise-like economy might just be in an enviable position eventually.

Let's not forget that the global economy is in a state of flux. Supply chains are realigning, manufacturing hubs are moving, and nations that can offer stability and reliability are suddenly the hot ticket. That's a niche Mexico, with its steady hand and growing domestic markets, fits surprisingly well into.

While dark clouds loom on the horizon (especially those stemming from the U.S. elections), there's a hint of something significant going around. Turns out, Mexico might just sneak into the top ten of the world's largest economies by the end of 2024. Not with a roaring boom, but with that same unassuming, persistent growth that's defined its recent years.

The truth is, Mexico's economy reminds us that 'exciting' isn't always synonymous with 'good'. Occasionally, it's the unflashy, reliable players that take the crown – just ask the tortoise.

The Crystal Ball and the Butterfly Effect

The fortune tellers of the financial world have always had a knack for apocalyptic visions. So when Arturo Ortiz Wadgymar of Mexico's Institute for Economic Research (IIEc) recently declared the nation's economy “consolidated,” eyebrows were raised. After all, we’ve all become accustomed to the drumbeat of recession and uncertainty.

Then he dropped the numbers: the Bank of Mexico holds a staggering $200 billion (USD) in foreign reserves. That's the cherry on top of Mexico's recent economic sundae; the most positive macroeconomic figures in five years, despite (or perhaps because of?) lingering pandemic woes and political strife.

“It seems like Mexico's economy has finally gotten its groove back,” quipped moderator Gerardo Minto Rivera, setting a lighthearted tone for the IIEc discussion.

Yet, Ortiz Wadgymar (a man whose credentials include a doctorate from the prestigious Complutense University of Madrid) is quick to temper optimism with realism. Yes, it's tempting to get excited, especially since 2024 is shaping up to be a nail-biter of an election year in both Mexico and the United States. However, even in the rosiest best-case scenario, there's that nagging possibility of a “moderate slowdown,” the usual hiccup that seems to haunt the twilight of every administration.

The Elephant(s) in the Global Room

The truth is, Mexico's economic health is inextricably tied to forces far beyond its borders. “Exogenous factors,” Ortiz Wadgymar calls them, a delightfully academic term for the proverbial monkey wrenches that even the most meticulously managed economies must endure.

For one, let's not forget the International Monetary Fund’s prediction of a global slowdown. It could dip as low as 1.9% by 2025. That means less demand for the goods and services Mexico sells, plain and simple.

The specter of Donald Trump's possible return to the White House lurks ominously. As Ortiz Wadgymar notes, a Trump resurgence would likely mean a return to threats on all fronts: drug policy, border control, and, naturally, immigration. Remember the NAFTA renegotiations? Let's just say they weren't exactly a beach holiday for Mexican trade negotiators.

Then, of course, there's the ever-present risk of armed conflict flaring up somewhere across the globe. Ortiz Wadgymar soberly noted there are currently around a hundred active warzones of varying size and intensity. Even if Mexico's domestic house is in order, events halfway around the world could send devastating shockwaves through markets.

So, Where Does That Leave Us?

Mexico, it seems, is enjoying a moment of economic sunshine. That much is undeniable. Yet, storm clouds are gathering on the horizon. Perhaps the $200 billion stashed away is less of a testament to robust growth and more akin to a family hastily stuffing cash under the mattress as a hurricane warning blares on the radio.

The next couple of years will be Mexico's economic stress test. The government must walk a delicate tightrope, balancing domestic growth with a constant, watchful eye on those “exogenous factors.” They must be nimble and decisive, not just to weather upcoming storms, but to seize any fleeting opportunities in an increasingly volatile global market. One thing's for sure: the business publications will have plenty to write about.