In 2017, the Mexican economy faced a complicated international situation due to protectionist threats from the President of the United States (USA), among them stand out: the renegotiation or termination of NAFTA, the imposition of discretionary taxes on Mexican exports, the deportation of 11 million undocumented immigrants, the construction of the border wall, freezing remittances to Mexico and increasing visa costs for Mexicans. Except for the NAFTA renegotiation, which was necessary, those threats did not materialize in 2017, which translated into an improvement in expectations regarding the Mexican economy. On the other hand, consumption had a positive dynamic. Also, the increase in international oil prices led to higher income for public finances. However, the construction sector continues in decline due to the lack of public investment and the slump in private construction.
Notwithstanding this environment and restrictive monetary and fiscal policies, Mexico had a 2.3% GDP growth in 2017, higher than estimated at the beginning of the year, which shows the economy’s resilience to external shocks, with inflation reaching its peak in 2017, expected to decrease in 2018, and an exchange rate that levels out international environment and capital flows volatility.
The structural reforms in energy, education, competitiveness, telecommunications, and finance, adopted in 2013 and 2014, implemented since 2015, continue today with public tenders in the energy sector. These reforms will foster an increased potential growth for the economy in the mid-term by generating more significant investment and employment, as well as incorporating new technologies, reducing production costs and increasing productivity and competition.
In particular, the energy reform implemented in 2017, the energy reform is a critical factor to reduce energy costs beyond the current price situation. In addition to attracting substantial investments from new stakeholders in this industry, will generate a greater efficiency and management autonomy for Petróleos Mexicanos (Pemex, Mexico's Government own oil company) and the Comisión Federal de Electricidad (CFE, Mexico's Federal Electric Commission).
Actual Sector
In 2017 the Gross Domestic Product (GDP) grew 2.3%, a deceleration from the growth of 2.7% in 2016, but this is better than expected at the beginning of the year when the forecast survey of Banco de México (Mexico's Central Bank) private sector predicted a 1.6% growth
Employment
Regarding the labor market, the unemployment rate decreased to 3.5% compared to 2016. In 2017, the increase observed in formal employment stands out, as the number of workers affiliated to the IMSS grew to 4.3% when compared to 2016, registering 802,000 additional jobs.
Inflation and currency exchange rate
In 2017, annual inflation stood at 6.8%, more than double the Bank of Mexico's target, as the exchange rate depreciation was reflected in the real economy and the rise in fuel prices.
The currency exchange rate, which was 20.6 pesos per dollar early in the year, increased its value around 5% in 2017, settling at 19.7 pesos per dollar.
Financial Sector
In 2017, the Bank of Mexico, has continued a restrictive monetary policy due to the attained inflation. In June 2017, Mexico's Centra Bank increased the interest rate by 25 basis points, to a level of 7.0%.
External Sector
Exports to the U.S. recovered in 2017, due to the depreciation of the dollar against the main world currencies and the growth in domestic consumption in that neighboring country. These boosted the commercial exchange between Mexico and the U.S., resulting in record levels in exports. On the other hand, oil exports stabilized at a lower level in a backdrop of low level in the face of lower production but had a slight advance in international oil prices. On the other hand, non-oil exports showed great dynamism throughout the year.
In 2017, exports amounted to 409 billion dollars, an increase of 9.5% compared to 2016. The monthly trend for exports shows a significant acceleration. The recovery of the industrial sector in the United States, our main buyer of manufactured goods is worth mentioning; this sector has reversed the negative trend shown in 2016.
The appreciation of the peso has benefited imports; these amounted to 420 billion dollars in 2017, 8.6% more than in 2016.
The growth in imports as a result from a 33% increase in oil imports and 6.4% in non-oil imports. Non-oil imports accounted for 89% of the total. The trend of non-oil imports shows a positive dynamic, as oil imports increased significantly in the last quarter of the year, on average 5.9% per month in Q4.