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Canadian Firms Set Sight on Mexico's Sunny Economy

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January 31, 2013

Many Canadian firms are setting their sights on Mexico as a prospect for increased demand for their products as well as business opportunities for Canadian companies looking to do business in that market.

Mexico City, Mexico - High unemployment, slow growth and crippling debt are common themes in many industrialized countries – but not in Mexico.

Statistics show that the unemployment rate in Latin America’s second-largest economy has fallen to its lowest level in more than four years, at 4.5 percent. Economic growth is outperforming most other countries and the stock market is hitting record highs. A solid jobs market and stable economy is bolstering the country’s middle class.

Mexico's sunny economy could carry benefits for Canada as well. Mexico is Canada’s fifth-largest destination for exports - though trade is still tiny compared with that of the United States - and many Canadian firms are setting their sights on Mexico, betting prospects will keep improving.

Trade between Canada and Mexico grew 8 percent between 2002 and 2011 - at compound annual growth rates - and Canada's export credit agency (EDC) expects growth to continue. Mexico's large population (112 million) and upbeat economic prospects "will have positive effects on their demand for Canadian products as well as open business opportunities for companies looking to do business in that market," the agency said.

"Mexico’s recent growth run is impressive, and is set to continue," said Peter Hall, chief economist at Export Development Bank in a note last week. "The country’s economy is expected to expand 3.5 percent this year – a little less than last year but still stronger than projected growth rates for Canada, the United States, and all of Latin America."

Recent amendments to modernize Mexico's labor laws are expected to buoy economic growth. And, inflation is slowing and interest rates are expected to remain at a record low.

That’s not to gloss over challenges. Crime rates remain high in Mexico - although they have declined to some extent from last year as turf wars among cartels has diminished slightly. The new government has laid out security plans that aim to curb the country’s crime rates.

While much of the world’s economies, such as China and Brazil, experienced a slowdown last summer, Mexico "was a rare and notable exception...generating remarkably smooth growth," Mr. Hall notes.

Sturdy consumer spending, - though it did subside a little in the third quarter of last year - strong government investment, and robust exports are driving growth.

The rate of private investment has cooled a bit lately, but Mr. Hall contends that’s temporary – principally because Mexican exports stand to benefit from a revival in United States housing, consumer, and corporate markets.

The bottom line, he says: "Over the coming months, this market will be one to watch."