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Why Mexico’s sunny economy is good news for Canada

This December 2011 photo shows the beach at the Mayan Garden Inn near Majahual in Costa Maya, Mexico.

Kim Curtis/AP

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

The unemployment rate in Latin America's second-largest economy has fallen to its lowest level in more than four years, at 4.5 per cent, statistics showed this week. 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. But it could also carry benefits for Canada too. Mexico is Canada's fifth-largest destination for exports (though trade is still tiny compared with that of the U.S.) and many Canadian firms are setting their sights on Mexico, betting prospects will keep improving.

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Trade between Canada and Mexico grew 8 per cent between 2002 and 2011 (at compound annual growth rates), and EDC expects growth to continue. Mexico's large population, at 112 million and upbeat economic prospects "will have positive effects on their demand for Canadian products as well as open business opportunities for Canadian companies looking at doing 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 Thursday.

The country's economy is expected to expand 3.5 per cent this year – a little less than last year but still stronger than projected growth rates for Canada, the United States and much of Latin America.

Recent amendments to modernize labour laws are also expected to buoy economic growth.

Inflation, meantime, is slowing and interest rates are expected to remain at a record low.

That's not to gloss over challenges. Crime rates, including drug-related killings, remain high. Still, murders in the country's hardest-hit states declined last year as turf wars among cartels diminished, and 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, slid in a slowdown last summer, Mexico "was a rare and notable exception...generating remarkably smooth growth," Mr. Hall notes.

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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 U.S. housing, consumer and corporate markets.

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

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More


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