President Enrique Peña Nieto took office in December 2012 for a six-year term. During his first year in office and with the majority of votes in Congress, he has acted swiftly to pursue overdue structural reforms, in the areas of labor market regulation, education, telecommunication and competition policy, financial sector regulation, energy, and fiscal policy. The administration will now focus on secondary legislation and in demonstrating implementation progress before the mid-term congressional elections in July 2015.
Economic growth in 2013 fell to 1.1 percent, compared to the strong recovery experienced between 2010 and 2012 (annual average growth of 4.3 percent). Deceleration in economic activity was driven by weaker export demand and a contraction in domestic investment, largely in construction. A gradual recovery of economic activity with more dynamic exports as the U.S. economy gains steam and normalization of public expenditures should bring economic growth back to a range of 3 to 4 percent over the next few years.
Growth performance is also attributed to stagnant total factor productivity due to low competition, poor contract enforcement and burdensome regulation resulting in widespread informality. Liberalization of the energy sector is expected to boost Mexico’s economic growth performance, and has created enthusiasm in the investor community, as reflected by the recent credit rating upgrade to A3 by Moody’s.
Mexico’s strong fundamentals, sound policy framework and skillful macroeconomic management have allowed the country to deal with financial volatility and heightened risk aversion related to the exit from unprecedented monetary policies in major advanced economies. Mexican financial asset prices have been less affected compared to other emerging markets and financial markets have been able to cope without mayor liquidity pressures or the need for public intervention. The authorities remain committed to let the exchange and interest rates respond to market forces, a commitment that is credibly backed by a reasonable level of international reserves (US$ 177 billion) and a Flexible Credit Line arrangement with the International Monetary Fund (US$ 73 billion).
Private investment, particularly in the energy sector, may enhance economic growth in the not-too-distant future, though productivity effects will likely become evident only over the course of several years.
The current administration is striving to contain a spiral of drug violence. The leaders of the vigilante “self-defense” groups of Michoacan state signed an agreement with the Mexican government that transforms them into an officially sanctioned security force. The self-defense groups sprang up last year to confront the Knights Templar drug cartel and moved aggressively this month into territory where the cartel held sway. Also, on February 23, 2014 Mexico arrested Joaquin “El Chapo” Guzman, considered the world's most powerful drug kingpin.