Mexico to Overtake Italy as 10th Largest Economy in the World
Euromonitor International forecasts that Mexico will overtake Italy to become the world’s 10th largest economy (in terms of GDP at purchasing power parity) by 2020.
Mexico benefits from a large and growing population, with its proximity to the USA being a major economic asset. The Italian economy is suffering from structural problems, which are limiting its economic growth potential.
- In 2010, Italy is ranked as the world’s 10th largest economy in total GDP measured at purchasing price parity (PPP) at I$1,767 billion. PPP is a method of measuring the relative purchasing power of different countries’ currencies over the same types of goods and services, thus allowing a more accurate comparison of living standards;
- In 2010, Mexico’s GDP totals I$1,537 billion in PPP terms. Mexico will overtake Italy in 2015 to become the world’s 10th largest economy. By 2020, Mexico’s GDP will total I$2,839 billion (PPP), while Italy’s will total I$2,455 billion (PPP);
|International $ billion|
Source: Euromonitor International from IMF, International Financial Statistics and World Economic Outlook/UN/national statistics.
- Mexico’s economy benefits from a large youth population while Italy’s population is aging. Mexico’s proximity to the USA acts as a powerful investment incentive but Italy suffers from structural problems including a relatively inflexible labour market and rising labour costs compared to emerging economies.
- Mexico’s economy has become heavily industrialised, particularly around the border with the USA, where alarge number of factories (maquiladoras) and light industry are based. Being part of the North America Free Trade Agreement (NAFTA) gives it duty free access to US markets;
- Mexico also benefits from relatively cheap labour with costs in Italy rising faster. For example, the seasonally adjusted unit labour cost index in manufacturing (average cost of labour per unit of output) was 118.7 in Italy in Q4 2009 (2005=100) compared to 103.6 in Mexico, according to the OECD. Italy has been experiencing a loss of investment attractiveness compared to cheaper countries in Eastern Europe and Asia;
- Italy is coping with an aging population. In 2020, the proportion of the population aged 65+ will total 22.8% but only 8.9% in Mexico. This will increase the workforce and create a larger consumer base in Mexico;
- Mexico’s working-age population (15-64 years) is forecast to grow by 1.3% annually on average over 2010-2020, while Italy’s will fall by 0.1% per year. By 2020, Mexico’s population will total 118.8 million, compared to 61.9 million in Italy giving it a larger workforce on which to draw;
- Italy also has persistently high unemployment, forecast to reach 8.9% in 2010, compared to 6.3% in Mexico. Italy suffers partly owing to a rigid labour market that makes it difficult to dismiss workers while geographical disparities (an under-developed south) have contributed to regional unemployment variations;
- The two countries are similar in suffering from the presence of major criminal groups. Yet the violence and drug cartel activity in Mexico does not appear to have substantially deterred investment, while Italian mafias are deeply entwined in economic structures. Family-run businesses in Italy are uncompetitive on a global scale;
- Consumer spending potential will increase quickly in Mexico as a result of economic expansion and growth from a lower base, with real consumer spending growth of an annual average 4.2% over 2009-2014 compared to 1.3% in Italy.
- Mexico’s economic growth will remain above 3.0% from 2010-2020 while Italy’s growth will be below 1.5% to 2020;
|Annual real % growth|
Source: Euromonitor International from International Monetary Fund (IMF), International Financial Statistics and World Economic Outlook/UN/national statistics.
- Consumer incomes will rise in Mexico at a faster rate than in Italy with annual disposable income forecast to grow by 4.1% annually in real terms on average between 2010 and 2020, while Italy’s will grow by 1.7%annually;
- Mexico will be increasingly attractive for foreign direct investment inflows (FDI) which totalled US$11.4 billion in 2009 according to ECLAC, although this fell from US$21.9 billion in 2008, as a result of the global economic slowdown.