This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries. The economic situation and policies of Mexico were reviewed by the Committee on 12 December 2023. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 5 January 2024.

The economy is navigating well the uncertain global economic environment. Headline inflation is gradually receding, but core inflation is persistent. Mexico has started to benefit from nearshoring (Figure 1), but fully harnessing its potential requires tackling long-standing challenges such as low productivity, and high inequalities.

After a slow recovery from the pandemic, the Mexican economy has navigated well the global environment of tightening financial conditions and heightened uncertainty (Figure 1.1, panel A). Mexico’s sound macroeconomic policies, with a track record for prudent fiscal management, a successful inflation targeting regime and a flexible exchange rate, have ensured economic stability. Inflation is lower than the OECD average (Figure 1.2). It is gradually declining, after a forceful reaction by the Central Bank, with core inflation proving more persistent. Public debt remains at a prudent level, thanks to a strong commitment to meet fiscal targets.

Growth has held up well thanks to a resilient domestic demand that is supported by a strong labour market. Inflation is falling but monetary policy will need to remain tight until inflation returns durably to the target. The financial sector has ample buffers and good progress to buttress financial supervision should continue. Fiscal policy has strong credibility thanks to a robust track record in attaining prudent fiscal targets. Raising more revenues would enable to respond to productivity-enhancing spending needs and maintain the commitment with fiscal prudence. Reforms to the fiscal framework would enhance its ability to smooth out economic cycles and provide support during downturns.

Mexico has large potential to boost its productivity and attract investment from companies looking to relocate their operations to North America. It also has an historic opportunity to spread the benefits of trade throughout the country, integrate SMEs more forcefully into value chains and to create more and better value chain linkages. Nearshoring is also an opportunity to step up efforts to address and mitigate climate change. Fully realising these opportunities will require addressing long standing challenges related to transport and digital connectivity, regulations, the rule of law, renewable energy or water scarcity.

Continuing the recent fall in income inequality and poverty will necessitate stepping up efforts to both address pressing social issues and bolster economic growth. Redoubling efforts to improve education outcomes would help Mexicans gaining the skills needed to participate in an evolving job market and boost Mexico’s growth potential. Mexico has much to gain from closing gender participation gaps, as it would lead to stronger growth overall and to a more equitable distribution of income and opportunities. Reducing informality would not only ensure greater job security and social protection for workers but also stimulate economic growth.

Access to adequate housing remains challenging in Mexico as many low- and middle- income households cannot afford purchasing a house because of high housing prices and limited access to credit. An underdeveloped housing rental market and insufficient supply of social and affordable housing force many households to resort to self-build or to reside in informal settlements. Administrative fragmentation and lack of coordination across levels of government favours a disordered urban development that provokes residential segregation, with vulnerable groups often living in peripheral areas with limited access to jobs, transport and urban services. Housing policies have recently become more targeted towards low-income households, which is commendable. Expanding the range of housing subsidies and fostering the development of a social rental housing sector would be valuable additional steps to improve access to housing for low-income households. Reforming the fiscal and legal framework to encourage private investment into rental housing and promoting public-private partnerships could boost the supply of affordable housing. Tasking states with ensuring that municipalities comply with federal and state urban and housing legislation and improving coordination across, urban, housing and transport infrastructure could ease the implementation of national policies and reduce residential segregation.