How Manufacturing is Key to Mexico’s Economic Future

By Doug Donahue

Companies and investors considering manufacturing solutions in Mexico are contributing to Mexico’s economic growth. Industries including aviation/aerospace, automotive and electronics have taken up extensive manufacturing in Mexico, helping further expand the country’s bright prospects.

Manufacturing in Mexico has been a stalwart sector in the NAFTA-member nation, which is blessed with a young, educated workforce, affordable labor and strong economic growth. Mexico, with more than a 2% share of global GDP, is home to the 13th-largest economy in the world, boasting expected growth through 2012 of 3.5%, outpacing investor-darling Brazil, which expects growth rates this year to dip as low as 1.9%. The combination of strong growth, low debt (under 20% of GDP – compared to the US level near 100% in 2011) and affordable labor has combined to make manufacturing in Mexico among the bright spots in the Latin America region.

In fact, manufacturing in Mexico is so strong, the country can now compete with China, particularly given its closer proximity to the US market, which results in lower fuel and transport costs, among other savings. Want more good news? Incoming Mexican President Enrique Pena Nieto plans to alter current law to allow the private sector to take part in the oil and gas sector, which should make manufacturing in Mexico even more attractive to companies considering outsourcing all or part of their operations there.

The latest “HSBC Mexico Manufacturing Purchasing Managers’ Index,” released on November 1, 2012, showed a rise in new orders in Mexican manufacturing in October, boosting growth there on a year-over-year basis. Both output and new orders rose markedly over September, with firms pointing to greater client demand and recent new product launches.

Commenting on the survey results, Sergio Martin, Chief Economist at HSBC in Mexico said:

“The HSBC Mexico Manufacturing PMI index improved to 55.5 in October from 54.4 in September. This suggests that the manufacturing sector will maintain healthy growth rates, showing resilience to the challenging global scenario. In addition, the services sector continues to strengthen, which supports our 2012 GDP forecast at 3.6%.”

Martin added that he expected automobile manufacturing in Mexico to drive activity in future months. Cars make up more than a third of Mexico’s manufactured exports. Mexico, Latin America’s second-largest economy, sends nearly 80% of its exports to the US.

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