Mexico has the 15th-largest nominal GDP in the world, and its economic improvements over the last decade have been linked primarily to its involvement with the North American Free Trade Agreement (NAFTA), which was established in 1994. NAFTA is a trade agreement with Canada, the United States and Mexico that allows for free trade between the countries. Through NAFTA, most exports are traded among the three countries with no tariffs, primarily eliminating trade barriers for goods and services.
Since the NAFTA agreement was signed, middle class income levels in Mexico have been rising simultaneously and the standard of living for the Mexican middle class has been improving. In 2015, Mexico’s middle class accounted for 47% of the country’s total households, at 14.6 million. The middle class is also expected to continue growing, with 3.8 million households expected to move into the middle class range by 2030.
Improved financial stability in the country and increased support from the government have been helping income equality substantially in Mexico. Meanwhile, the middle class has also benefited from increased levels of production in electronics and automobiles, as NAFTA’s provisions allow for these goods to be traded tariff-free. Electronics and automobiles have long since been a leading manufacturing focus in the country, and with increased production levels, middle-class workers are seeing incrementally improved wages and more job opportunities.
Electronics and Automobile Manufacturing
Since 1994 when NAFTA was agreed upon, both the electronics and automobile industries have grown significantly, as North American free trade has been a leading catalyst for increased manufacturing and production. Mexico has the sixth-largest electronics industry in the world, and is the largest exporter of electronics to the United States. Leading electronic products manufactured in the industry include televisions, display monitors, circuit boards, semiconductors and computers. The country is also a leading supplier of communications equipment, including mobile phones. Additionally, Mexico is one of the world's top producers of electronic appliances.
In the automobile industry, Mexico manufactures and produces the most automobiles in North America. A large majority of the automobile manufacturing industry in Mexico is represented by General Motors Company (NYSE: GM), Ford Motor Co. (NYSE: F) and Fiat Chrysler Automobiles NV (NYSE: FCAU). All three companies manufacture a high percentage of their automobiles in the country. Other leading automobile manufacturers in the country include Volkswagen, Nissan, Kia Motors, Mercedes-Benz and Audi.
As the economy and consumer dynamics of the country continue to improve, more manufacturers are adding or moving their operations to Mexico. This trend is expected to continue, with the country likely to see an increasing number of manufacturers, specifically in the electronics and automobiles industries.
Mexico’s Energy Sector
In Mexico, the energy sector is also a highly influential factor for the country’s economy. Its land is rich with natural resources for commodities mining, exploration and refining. In the country, Pemex is one of the largest energy companies with a focus on upstream and downstream natural gas and oil operations. Pemex is one of the largest oil companies in the world and, as such, provides a wide range of jobs for the country’s population.
Rising Middle Class Income Levels
Overall, Mexico’s middle class growth has been linked simultaneously with the added economic advantages of the 1994 North American Free Trade Agreement, which has increased exports for electronic and automobiles while also improving energy exports. At the same time, the country has benefited from an increased focus on income equality reform from the Mexican government. Since the mid-1990s, income levels in Mexico’s urbanized areas have grown to an average of $26,654 annually. Minimum wage levels have also risen to a high of 67.29 Mexican pesos, or $5.13 U.S. dollars. As a result of the country’s manufacturing sector growth and energy sector expansion, economists forecast Mexico’s economy to grow to the fifth-largest in the world by 2050. This growth is expected to add to the increasing income levels and purchasing power of Mexico's middle-class consumers.
While middle class income levels are improving for consumers in Mexico, studies show that consumers are optimistic about the future economy, yet spend conservatively. With the continued growth from the Mexican middle-class consumer and this spending dynamic, more and more companies in the consumer packaged goods and retail industries are opening new operations to capitalize on this optimistic yet conservative demand. AT&T (NYSE: T) is one example, as the telecommunications provider has expanded its high-speed internet service to reach an additional 100 million people in Mexico by 2018. As the number of Mexico's middle-class consumers continues to grow, the country is likely to see additional offerings from conservative consumer discretionary providers such as AT&T, with added offerings for improved mobility and connectivity. (For related reading, see "4 Economic Challenges Mexico Faces in 2019")