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Mexico’s Economy to Grow By Up To $60 Billion

04 July, 2013

Mexico is fast becoming the world’s next major manufacturing superpower,outshining even China,thanks in large part to lower labor and fuel costs,as well as the nation’s strategic geographical position. 

“Within five years,higher manufacturing exports due to a widening cost advantage over China and other major economies could add $20 billion to $60 billion in output to Mexico’s economy annually,” writes the Wall Street Journal. “The key drivers of Mexico’s improving competitive edge are relatively low labor costs and shorter supply chains due to the country’s proximity to markets in the U.S.”

In addition,Mexico currently holds 44 free trade agreements,which is more than any other country. This allows many of its exports to reach their destination abroad without paying high duties. The agreements benefit international manufacturers who assemble components in Mexico real estate for a wide variety of items  - from automobile and jet engines to computers. In 2012 the average cost of manufacturing in Mexico dropped below China for the first time and over the next three years is expected to hit around six percent.

“Mexico is in a strong position to be a significant winner from shifts in the global economy,” Harold Sirkin,a senior partner for Boston Consulting Group,told the Wall Street Journal. 

This shift in global manufacturing is also good news for the United States,since Sirkin says products made in Mexico typically contain at least four times the number of U.S.-made components as items that are made in China. Transportation goods,computers,electronics,appliances and machinery are the industries that are expected to realize the biggest gains over the next few years,making the cost advantages of moving production to Mexico harder and harder to ignore.

Even when productivity differences have been factored in,the cost of setting up operations in Mexico remains highly competitive. And the average cost of doing business in Mexico is expected by some analysts to be nearly 20 percent less than China by 2015. By this time,Mexico is also poised to offer lower energy costs than other manufacturing nations,including a four percent advantage over China in electricity costs and a 63 percent advantage in the average price of industrial natural gas. As a result,production in key sectors is projected to rise by up to nearly 20 percent over the next five years.

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