Country report Mexico

Economic overview

The Mexican economy grew in the third quarter of 2022 and did so at a much faster rate than the market expected.

In fact, the gross domestic product increased by 1% in the third quarter compared to the previous quarter, against expectations of a growth of 0.7% and accelerating compared to the growth of 0.9% in the previous quarter.

Compared to the same quarter of the previous year, growth is 4.2%, much higher than the +2.8% expected by the market.

Mexico’s economy achieved “unexpectedly” positive results in 2022, ranking sixth out of 34 countries analyzed in the list of “unlikely winners”, compiled by the British magazine The Economist, in which the Agnelli family owns an important shareholding .

The magazine ranked the nations according to five economic and financial indicators—gross domestic product growth, inflation, inflation magnitude (the proportion of index items whose price has increased by more than 2% in a year), stock market performance and government debt—assigning each an overall score. Mexico was beaten only by Greece, Portugal, Ireland, Israel and Spain.

The Latin American country’s success is largely due to its GDP growth of 3.3% between the fourth quarter of 2021 and the third quarter of 2022, the fourth-highest result on the list. Although inflation has been high — with consumer price growth of 6.8% and amplitude of 82.4% — the comparison with many other economies analyzed is still favourable. The average price of listed shares in Mexican markets fell by 0.9%, while its share of debt in GDP decreased by 0.7%.

Overall, the magazine highlighted that, in a year characterized by a complicated economic situation around the world, some previously weak countries have proved surprisingly resilient in the face of geopolitical uncertainty and the vicissitudes of global supply.

Mexican President López Obrador highlighted the achievement, boasting that Mexico topped Canada, Japan, France, Italy, Belgium, Switzerland, Great Britain and even the United States in the magazine’s rankings.

Main sectors of industry

At an industrial level, the secondary sector today is based on large companies, unlike in the past which relied on the strength of small and medium-sized enterprises. Of colossal importance are the famous Maquilladoras (assembly industries) which since 1965 have dealt especially with the textile and electronic sector in collaboration with North America. Among the most developed industries we find the iron and steel industry and the metallurgical one of tin, aluminum, lead and copper. 

The chemical and petrochemical industry is also thriving and successful, above all due to the recent exploitation of national hydrocarbon resources. Finally, it should be noted that all the big world automakers are aiming to expand their activities in Mexico: both for exports to the United States and Canada, favored by the free trade treaty of NAFTA (North America Free Trade Agreement), and for satisfy the internal demand of a country that now has 115 million inhabitants and is in second place after Brazil in the economic hit parade of Latin America.

At the primary sector level, Mexico is a major producer of cotton, wheat, sugar cane, cocoa. Of particular importance is also the breeding above all of pigs (10 million) and cattle (about 25 million) and, in the mountainous areas, of sheep and goats.

In the tertiary sector, the most developing one, tourism accounts for most of the revenue, given that Mexico is one of the most sought-after holiday destinations for Europeans and Americans.

Taxation for businesses in Mexico

Resident individuals are subject to Mexican income tax on their worldwide income, regardless of their nationality. Nonresidents, including Mexican citizens who can prove residency for tax purposes in a foreign country, are taxable only on their Mexican source of income. The Federal Tax Code provides that a foreign person will be considered a resident of Mexico for tax purposes when he establishes his home in Mexico, unless he has been physically present in a foreign country for more than 183 days, consecutive or not , in one calendar year, and is able to demonstrate residence for tax purposes in that other country.

Residents are required to include in their investment income annual returns, except for: (a) Mexican banking interest and government obligations, which is subject to withholding tax of 20% on gross interest (or a portion thereof) or is exempt, (b) dividends from Mexican companies or investment funds, and (c) capital gains on transactions made through the Mexican stock exchange, which are exempt.

Sales tax in Mexico is known as IVA (Impuesto al Valor Agregado). Mexico has two sales tax rates: 10% in border areas and 15% elsewhere. The current rate of sales tax on all goods and services classified for VAT is 15% unless the transaction takes place within the ‘border area’, in which case the reduced rate of 10% applies.

Investing in Mexico

Geographical proximity to the United States, financial solidity, currency stability, the presence of tax incentives, openness to international trade, relatively low labor costs and a young workforce are just some of Mexico’s strengths.

Its strengths are many and varied, starting from the solid macroeconomic fundamentals: market made up of 130 million consumers, political, financial and peso exchange rate stability, availability of credit for businesses, low inflation, rigorous financial policy which guaranteed in 2019 a primary budget surplus of 1% and a debt/GDP ratio under control (53.7%), as well as an increase in 2019 in real wages (+3.5%) and employment (+1 .8%).

Secondly, the strategic geographical position as a link between the North and South of the American continent allows Mexico to produce for the domestic market and to easily export goods and products to the United States (where 75% of exports are directed) and Latin America. The common border with the United States constitutes an incredible added value that has favored the development, close to the border, of a delocalized industry integrated with US production processes (one immediately thinks of the famous maquiladores).

Thirdly, some Mexican states, considered the country’s economic engine, are promoting a robust policy of financial and tax incentives which attract foreign operators and which have allowed the creation of specialized industrial parks and technological centers equipped with important infrastructures for the benefit of all businesses in a given district. Examples of great interest are the industrial zone of the State of Mexico, the industrial park of Queretaro, which houses about 130 companies, the automotive and aerospace district of Guanajuato and the footwear center of Leon, all districts with a high concentration of productive investments, also Italians. In addition, there are incentives from individual local institutions for companies that intend to invest in a particular state and carry out territorial enhancement projects.

Added to this is the traditional openness to international trade, which makes Mexico one of the countries in the world with the most free trade treaties in force.

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