Market at a Glance

Key Information

Capital

Mexico City

Population

127.5 million

Area

1,964,375 sq km

Currency

Mexican Peso (1 MXN = 0.0556 USD as of 17 April 2018)

Main language

Spanish

Form of government

Federal Presidential Republic

Ease of doing business by World Bank

# 49 out of 190 in 2018 (¯2)

The Global Competitiveness Index by the World Economic Forum

# 51 out of 137 in 2017/18 (same as 2016/17)

Logistics Performance Index by World Bank

# 54 out of 160 in 2016

Major merchandise exports (% of total, 2017)

Major merchandise imports (% of total, 2017)

Manufactured goods (89.0%)

Intermediate goods (76.5%)

Oil (5.7%)

Consumer goods (13.6%)

Agricultural products (3.9%)

Capital goods (9.9%)

Top three export markets (% of total, 2016*)

Top three import markets (% of total, 2016*)

USA (80.9%)

USA (49.2%)

Canada (2.8%)

China (19.0%)

China (1.4%)

Japan (4.9%)

* Most recent year for which data are available

Source: Economist Intelligence Unit

Political Highlights

Mexico is a federal presidential republic wherein the President is both the head of state and head of government. The President has strong control over the entire system and is elected for a six-year term and cannot be re-elected. The President appoints the cabinet, and legislative power is vested in the bicameral congress. Mexico will hold its general election on 1 July 2018 and the political scene will be dominated by the campaigning and the transition to a new government.

Since taking office in 2012, President Enrique Peña Nieto from the Institutional Revolutionary Party (PRI) has pushed through reforms in energy, telecommunications, finance and education, aiming to boost competition and raise economic growth. However, structural growth is constrained by factors including underinvestment in infrastructure and deficiencies in education system, among others. During the remainder of his term which ends in December 2018, Peña Nieto is expected to focus on maintaining economic stability and defending Mexican interests during talks with the U.S. and Canada to renegotiate the North American Free-Trade Agreement (NAFTA). Challenges of Mexico included government effectiveness and control over corruption. Mexico ranked 135 (out of 180) on Transparency International's most recent Corruption Perceptions Index 2017, and 12 spots worse than its rank in the previous year.

Mexico exports over 80% of its products to the U.S., and U.S. in turn the leading provider of foreign direct investments to Mexico. Dependence on the U.S. economy has made the country vulnerable to fluctuations in the U.S. economic cycles and policy changes. On 8 March 2018, Mexico and 10 other countries signed the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), a free trade agreement linking the Asia-Pacific countries, through the agreement Mexico will have preferential access to these markets and help it to diversify away from the US. Tensions between the U.S. and Mexico persisted in recent time, owing to the determination of the US president, Donald Trump, to build a border wall and tighten restrictions on immigration, and his hardline stance on trade.

Economic Trend

* Estimates  ^ Forecasts

Source: Economist Intelligence Unit

Mexico is the second largest economy in Latin America. Abundant cheap labor, preferential trade access and geographical closeness to the U.S. have lured investments in manufacturing. Mexico’s manufactured goods exports took up an overwhelming 89% of the total in 2017, rising from an average of about 25% in the 1980s. Remarkably, Mexico’s exports played an important role for the economy, which contributed about 38% of GDP in 2017.

Macroeconomic conditions remain challenging for the country. In an attempt to control inflation, the central bank has lifted its benchmark interest rate in February 2018 to the nine-year high of 7.5%, signaling it would act again to bring the inflation to the 3% target if needed. Also, Mexican Peso is forecast to weaken modestly amid concerns over the presidential election, U.S. trade policy and North American Free Trade Agreement (NAFTA) renegotiations, bringing an upward inflationary pressure in near future.

For 2018, Mexico’s economic growth will be susceptible to the outcome of elections and progress of the NAFTA talks, with the economy expected to grow at a slower rate than 2017. The Mexican economy is forecast to grow by an average of 2.1% between 2018 and 2022 driven by private consumption.

In April 2018, credit rating agency Moody’s had changed Mexico’s A3 rating outlook from negative to stable. The revision was driven by factors including risks to growth stemming from the NAFTA renegotiation are receding, favorable fiscal results and the probability is low that the next administration, through a sharp change in policy direction, weakens Mexico's credit fundamentals.

Hong Kong – Mexico Trade

Source: Census and Statistics Department of Hong Kong

Total exports from Hong Kong to Mexico increased by 3.9% from HK$27,874 million in 2016 to HK$28,966 million in 2017. The top three export categories to Mexico were: (1) telecommunications and sound recording and reproducing apparatus and equipment (-2.9%), (2) electrical machinery, apparatus & appliances, and electrical parts thereof (+9.7%), and (3) office machines and automatic data processing machines (+27.7%), which represented 81.7% of total exports to Mexico. 

Source: Census and Statistics Department of Hong Kong

ECIC Underwriting Experience

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Mexican buyers. For 2017, the number and the amount of credit limit applications on Mexico increased by 24.8% and 45.3% respectively, and insured business increased by 4.7%. Major insured products were electrical appliances, electronics and furniture, which represented 55.9% of ECIC’s insured business on Mexico. The Corporation’s underwriting experience on Mexico has been acceptable, with three payment difficulty cases and two claim payment cases reported during the past 12 months (from April 2017 to March 2018), involving travel goods, metallic products and chemical products.

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Last update: 17 April 2018

Strengths

Ÿ  Large domestic market

Ÿ  Abundant natural resources

Ÿ  Ample foreign reserves

Challenges

Ÿ  Vulnerable to commodity price fluctuations

Ÿ  Weak public finances

Ÿ  High unemployment rate

Key Information

Capital

Brasilia

Population

207.4 million

Area

8,515,770 sq km

Currency

Brazilian Real (1 BRL = 0.3056 USD as of 2 February 2018)

Official language

Portuguese

Form of government

Federal republic

Ease of doing business by World Bank

# 125 out of 190 in 2018 (↓2)

The Global Competitiveness Index by the World Economic Forum

# 80 out of 137 in 2017/18 (↑1)

Logistics Performance Index by World Bank

# 55 out of 160 in 2016

Major merchandise exports (% of total, 2016)

Major merchandise imports (% of total, 2016)

Primary products (42.7%)

Intermediate products & raw materials (51.6%)

Manufactured products (39.9%)

Capital goods (21.6%)

Semi-manufactured products (15.1%)

Consumer goods (17.8%)

Top three export markets (% of total, 2016)

Top three import markets (% of total, 2016)

China (19.0%)

China (18.6%)

USA (12.6%)

USA (17.9%)

Argentina (7.2%)

Argentina (7.0%)

Source: Economist Intelligence Unit

Political Highlights

Brazil is a federal republic and South America’s most influential country. The legislative branch is made up of a bicameral National Congress which consists of the Senate and the Chamber of Deputies. Michel Temer of the centrist Brazilian Democratic Movement Party (PMDB) sworn in as president in August 2016 to replace Dilma Rousseff of left-wing Workers’ Party, who was impeached on charges that she manipulated government accounts. This brought an end to the 13-year rule of the Workers' Party and Michel Temer will serve as presendent until the end of 2018.

During the ruling of Workers’ Party dominated politics, it had a track record of reducing poverty and inequality thanks to its generous social program at a time of global commodity boom. It also attempted to boost economic growth through tax cuts and subsidized lending. As a result, Brazil’s public finances deteriorated markedly. The government's inability to plug the widening fiscal deficit amid a deepening political and economic crisis at the time prompted major credit rating agencies to downgrade the country’s credit rating to non-investment grade in late 2015 and early 2016.

Michel Temer pledged to bring back political stability to the recession-stricken country. For 2017 and beyond, the government has proposed a cap on the growth in federal noninterest spending at the previous year’s inflation rate, and announced plans for social security reform. There was a modest signs of recovery in 2017 from a three-year recession. Michel Temer called for an unpopular pension overhaul to reduce Brazil’s large fiscal deficit. The proposal seeks to increase the age of retirement and collection of social security. However, there is uncertainty in passing the pension legislation as presendential, legislative and state elections are scheduled to be held in October 2018.

Economic Trend

* Estimates  ^ Forecasts

Source: Economist Intelligence Unit

Brazil is Latin America’s largest economy. Industries are diversified, ranging from the manufacturing of consumer durables to automobiles and aircraft. The country is rich in natural resources, particularly iron ore. Brazil enjoyed an average annual growth of 4.5% between 2006 and 2010 at a time of global commodity boom. However, Brazil went into recession due to low commodity prices, failure to make the necessary policy adjustments, political uncertainty, and slowdown of China, which is Brazil’s largest export market. The average annual growth decelerated to 2.1% between 2011 and 2014. Real GDP contracted by 3.5% in 2015, and 2016 respectively.

The benchmark interest rate reached as high as 14.25% in July 2015 as a result of tight monetary policy. The high interest rates made public debt costlier to service. Brazil’s central bank performed 11 consecutive cut in intereset rate between October 2016 and Feburary 2018 to 6.75%, bringing borrowing costs to the lowerst in modern history.  The Government committed to lower inflation and boost long term economic growth by increasing investor certainty, and that the central bank would not close the door for further interest rate cuts. Annual inflation rate plunge from nearly 11% in early 2016 to under 3% in December 2017.

One of Brazil’s main export, soybean made a record harvest in 2017, which gave the economy a boost. Also, the government boost private consumption by allowing withdrawal from accounts of the Worker’s Severance Indemnity Fund (FGTS). Brazil’s economy grew by nearly 1% in 2017, putting an end to the country’s longest recession in history.  However, the unemployment remained high at 11.8% in 2017, though it has been decreased from highest at 13.7% in Mar 2017. Brazil’s outlook will depend on the progress of fiscal consolidation and reforms, especially dealing with the unsustainable pension system.  Election uncertainty also poses an important downside risk.

Hong Kong – Brazil Trade

Source: Census and Statistics Department of Hong Kong

Total exports from Hong Kong to Brazil increased by 21.4% from HK$9,820 million in 2016 to HK$11,925 million in 2017. The top three export categories to Brazil were: (1) electrical machinery, apparatus & appliances, & parts (+36.4%), (2) telecommunications, audio & video equipment (+24.9%), and (3) office machines & computers (+39.6%), which represented 76.6% of total exports to Brazil.

Source: Census and Statistics Department of Hong Kong

ECIC Underwriting Experience

The Hong Kong Export Credit Insurance Corporation (ECIC) imposes no restrictions on covering Brazilian buyers. Currently, the insured buyers in Brazil range from small and medium sized companies to listed companies. For 2017, the number and the amount of credit limit applications on Brazil decreased by 36.7% and 30.6% respectively. The insured business also decreased by 30.7%. Major insured products were electronics, chemical products and metallic products, which represented 62.1% of ECIC’s insured business on Brazil. The Corporation recorded three payment difficulty cases and five claim cases in the past 12 months (from February 2017 to Janurary 2018), involving various kinds of products such as office & stationery supplies, textiles, electrical appliances, electronics and mineral products.

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Last update: 20 February 2018