Mexico is a classic example of a two-sided economy. While one part shines bright with a trillion-dollar gross domestic product (GDP), the other part is overshadowed by the fact that approximately 36% of its population lives below the poverty line. Mexico has the second-highest degree of income inequality amongst the 38 member nations of the Organisation for Economic Co-operation and Development (OCED).
In this article, we review the primary sectors that contribute to Mexico's gross domestic product and how they impact the nation's economy as a whole.
Key Takeaways
- In 2022, Mexico's gross domestic product (GDP) was $1.41 trillion.
- From 2010 to 2018, Mexico's annual GDP rate showed modest growth, ranging from 1.35% to 5.12%.
- In 2020, the GDP rate for Mexico was -8.24%, a contraction resulting from the demand and supply shocks caused by the COVID-19 pandemic.
- In 2021 and 2022, the GDP rate bounced back after the worst of the COVID-19 pandemic had passed. GDP grew at a 4.7% and 3.1% rate, respectively, in 2021 and 2022.
- The agriculture sector contributes just 4.1% to the nation's GDP and employs about 12% of the labor force.
- The industry sector accounts for 32.1% of Mexico's GDP, while the services sector accounts for 58.8%.
Mexico's GDP
The country has managed to move ahead despite poverty, corruption, income disparity, and the presence of a large informal economic sector.The World Bank categorizes Mexico as an “upper middle income” nation. Mexico’s $1.41 trillion gross domestic product (GDP), as of 2022, made it the 14th-largest economy in the world in terms of nominal gross domestic product while placing it on the 84th spot in terms of purchasing power parity (using constant 2017 international dollars).
Mexico is the second-largest economy in Latin America after Brazil and is also an oil-exporting nation. The graph below, from the World Bank, shows the annual percentage growth rate of GDP at market prices based on constant local currency.
As you can see in the graph above showing annual GDP growth in Mexico from 1980 to 2022, the Mexican economy has weathered many challenges over the years. In 2009, the GDP took a massive negative dip. This was synchronized with the financial crisis of 2008-09 that affected almost all global economies.
Mexico recovered and between 2010 and 2018 showed positive growth. However, the modest growth during these years—ranging from a high of 5.12% to a low of 1.35%—showed thatthe economy was struggling through some issues. Chief among these is the end of the so-called commodity super-cycle—the period from the late 1990s until the financial crisis of 2008.
During this time, most commodities experienced double-digit annual real price growth fueled by rising demand from the United States and Eastern Europe, as well as the so-called BRICS economies. BRICS is an acronym for Brazil, Russia, India, China and South Africa (the group will add six nations next year: Saudi Arabia, Iran, Ethiopia, United Arab Emirates, Egypt, and Argentina).
In 2019, Mexico's growth rate went negative for the first time in a decade, dipping to -0.05%. According to the World Bank, compared to similar economies, Mexico underperformed in terms of poverty reduction, growth, and inclusion. The economy contracted by 8.24% in 2020, experiencing demand and supply shocks caused by the impact of the COVID-19 pandemic. But the economy recovered post-2020 and showed positive growth in 2021 and 2022, according to the World Bank, growing at a rate of 4.7% in 2021, and 3.1% in 2022.
GDP Composition
The composition of the gross domestic product is broadly split into the primary sector (agriculture), the secondary sector (industry), andthe tertiary sector (services). According to 2022 data by the World Bank, agriculture, forestry, and fishing accounted for 4.1% of the GDP, while industry and services accounted for 32.1% and 58.8% of the GDP, respectively.
Agriculture a Small Part of the GDP
Agriculture, which includes forestry, fishing, hunting, livestock production, and cultivation of crops, contributes a mere 4.1% to Mexico’s GDP. The share had remained below 4% for over 20 years. Nevertheless, agriculture, or the primary sector, plays a crucial role in indirect ways for the Mexican economy.The primary sectorhas helped in strengthening trade ties with the United States as well as in alleviating poverty and creating jobs. Agriculture provides employment to about 12% of the nation’s labor force. However, in rural areas, more than half of the population might be involved in agricultural activities.
Mexico’s agricultural sector can be split into two parts:
- Subsistence farming dependent on family farmers and unskilled laborers in the rural areas
- Highly-competitive export-oriented farming
While farms focused on agricultural exports have helped lift the earnings and standard of living of some workers, they have also intensified the income inequality among agricultural workers. The World Bank graph below shows the contribution of the agricultural sector since 1980 to Mexico'sgross domestic product.
Agricultural Imports and Exports
Mexico's agricultural imports in 2021 totaled approximately $41.4 billion, while its exports amounted to approximately $46.6 billion. Mexico's biggest trading partner is the United States, which purchased about 80% of the nation's agricultural exports.
Mexico and the U.S. have a complementary trade relationship, which refers to the fact that the two countries tend to export different agricultural products to one another. For example, Mexico does not produce enough grains and oilseeds to meet its domestic demand, so it imports large amounts of these products from the United States. Beer, distilled spirits, fruit, and vegetables comprise about 83.6% of U.S. agricultural imports from Mexico.
IndustrySector
The industrial sector, which includes manufacturing, mining, oil, and gas, has contributed approximately 25% to 35% of Mexico’s GDP. The numbers have hovered around the same percentage for the past 35 years. From 2002 to 2022, industry averaged about 32% of Mexico’s GDP. Industry employs 26% of the nation’s labor force.The graph below shows the contribution of the industrialsector since 1980 to Mexico'sgross domestic product based on World Bank data.
The most well-known and developed industries in Mexico are the automotive, electronics, and oil industries.
Automotive
Although it serves mainly as an assembly manufacturer, in recent years the automotive industry has advanced to conducting independent research and development. Some of the most well-known car manufacturers like General Motors Co (GM), Ford Motor Co (F), Toyota Motor Corp (TM), Mercedes Benz (a subsidiary ofDaimler AG), Honda Motor LTD (HMC), and Volkswagen Group have set up operations in Mexico.
Oil
Mexico also has the oil to power these cars. In 2021, the nation ranked 12th in the world for crude oil production with 1.9 million barrels produced daily. Oil industry earnings amounted to about 16% of total government revenues. A key component of Mexico's economy is its trading partnership in oil products with the U.S. In 2021, the U.S. imported over 212 million barrels of Mexico's heavy crude oil.
Starting in 1938, the state-owned Petroleos Mexicanos (PEMEX) had been solely responsible for exploration, research, and sale of oil in Mexico. Inefficient infrastructure, corruption, and bureaucracy were cited as reasons for the underperformance of PEMEX. This led the Mexican government to open up the sector to foreign players in 2013 through an auction that encouraged private investment to revive its oil and gas production.
Between 2013 and 2018, the government awarded 107 contracts to private oil and gas contractors as part of the nation's energy reform mandates. However, theLópez Obrador administration has expressed reluctance to continue private sector investment in the oil industry, preferring instead to focus its efforts on strengthening PEMEX. Starting in December 2018, the Mexican government announced it would halt the private investment auction process. As of August 2023, the private investment auction process has not been restarted.
Electronics
The electronics industry has grown tremendously, especially with the Mexican government’s initiatives designed to promote the nation's competitiveness in electronics and technology. The goal is to make Mexico a top exporter of electronic goods. Other than manufacturing, mining is also an important component of industrial activity. Mexico is the leading producer of silver in the world and is rich in minerals like fluorspar, graphite, and strontium.
$18.9 billion
The value of Mexican exports of minerals and ores in 2021.
Manufacturing
In manufacturing, Mexico has the advantage of high labor productivity and free trade agreements with multiple nations. Rising wages in China also make Mexico a more attractive destination for manufacturing. And natural gas prices (tied to the U.S.) are helping the country boost its manufacturing. Manufacturing contributes 19% to the country’s GDP.
Services Sector
Through the twentieth century, Mexico transformed from an agrarian to an industrial economy. By the 1960s, manufacturing was at the center stage and had become the engine of growth. However, the services sector slowly started to assume a more important role and has now become a dominant force for the Mexican economy.
The services sector, or tertiary sector, employs 62% of the nation’s labor force and contributes a significant 58.8% to the GDP.The graph below shows the contribution of the servicessector since 1980 to Mexico'sgross domestic product based on the World Bank data.
Financial service is one of the major components of Mexico’s services sector and has attracted a significant amount of foreign investment. The financial sector in Mexico is largely foreign-owned. For example, Banamex is a part of Citigroup Inc.(C), Bancomer is a unit of Spain’s BBVA, SERFIN is part of Santander, Canada’s Scotiabank owns Inverlat, and Bital operates as part of HSBC (HSBC).
Other than financial services, tourism is another important segment of the service industry. Mexico has a huge scope for its tourism industry with 35 sites on UNESCO’s list of cultural or natural world heritage.
What Rank Is Mexico in GDP in the World?
Mexico's gross domestic product (GDP) was $1.414 trillion dollars in 2022, making it the 14th largest country in the world by GDP, following South Korea at $1.665 trillion, according to World Bank statistics.
Does Mexico Have a Higher GDP Than Brazil?
No. Brazil's GDP was $1.920 trillion dollars in 2022, making it the 11th largest country in the world by GDP, following Italy who caps off the top 10 with $2.010 trillion, according to World Bank statistics. Mexico has the 14th highest GDP on the World Bank's list at $1.414 trillion.
What Country Has the Largest GDP in the World?
The United States has the largest GDP in the world. The U.S.'s GDP was $25.462 trillion in 2022, according to the World Bank. China's GDP was $17.963 trillion, making it the second largest. Japan's GDP was $4.231 trillion, making it third. In fourth place was Germany, with $4.072 trillion, and in fifth place was India, with $3.385 trillion.
The Bottom Line
Mexico has greatly benefited from its international treaties of free trade, most notably the North American Free Trade Agreement (NAFTA). The treaty not only created the largest free trade zone in the world, but also laid a foundation for the growth and prosperity of the United States, Mexico, and Canada. Since its introduction in 1994, the U.S. and Mexican economy has become increasingly integrated with strong trade and supply chain links. In 2020, NAFTA was replaced by the United States-Mexico-Canada Agreement (USMCA).
Today, Mexico has a large, diversified,and strong economy with its oil sector, remittances from the United States, exports, agriculture, mining, tourism, and industrial activity playing the most significant roles in its growth. However, the country also suffers from problems like corruption, a huge informal economy, drug cartels, and income inequality which need to be tackled to ensuresustainable growth.
Correction—Dec. 2, 2021: A previous version of this article included incorrect data in the"Industry, Value Added (% of GDP) in Mexico" chart.
