Mexico ETF: Will Complacency Slow It Down?

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After a year of seemingly endless problems sprouting up, Mexico’s officials may have become complacent. It could be a stumbling block on the way to economic and ETF health if the situation doesn’t change.

Mexico was fettered to the United States as both economies plummeted during the recession, and Mexico’s GDP shrunk by 9.7% in the year ending June. The performance was much worse than other neighboring countries with close ties to the United States, according to The Economist.

This recession revealed the structural weaknesses in Mexico’s economy. NAFTA brought free trade, modernization, new technology and rapid growth to Mexico’s economy; however, the trade agreement left Mexico dependent on the American economy. As exports to the United States decreased, unemployment in Mexico’s northern industrial cities increased into double digits.

NAFTA brought little change to Mexico’s economy, which is still encumbered by regulation, protected monopolies and oligopolies and stubborn trade unions.

Furthermore, the economy was also crippled by a decline in services like transport and logistics that were linked to trade. The outbreak of the H1N1 virus also helped to deter tourists for months.

Meanwhile, the Mexican government seems to be exacerbating the problem. The income brought on by oil is projected to fall in 2010 and the country’s credit rating may be downgraded as a result. The government is trying to prevent this by raising taxes by 1% of GDP and reducing spending.

  • iShares MSCI Mexico Investable Mkt Idx (NYSEARCA:EWW): up 46.7% year-to-date

Max Chen contributed to this article.