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The bright side of Mexico’s economy

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While oil production is falling, gains in auto production and consumer spending are helping give Mexico the fastest growth among major economies in Latin America and an expansion that’s quicker than several large oil producers.

Lower oil prices are great for consumers, but bad for countries — like Mexico — that depend on oil revenue. But for Mexico, it’s not as bad as many people think, Bloomberg analysts report.

That’s because in the last two years, the federal government has been diversifying its sources of income. Mexico raised the maximum income tax rate to 35 percent, increased the sales tax in states along the U.S. border and applied an 8 percent levy on junk food, for example.

The tumble in global oil prices has sent Mexico’s currency to a record low and forced the nation to cut spending and raise interest rates. Yet Latin America’s second-largest economy is actually less dependent on oil revenue than at any time in the past decade.

Oil rigs are seen from the Pemex Ku-S oil processing center, part of the Ku-Maloob Zaap complex, in the Gulf of Mexico, off Ciudad del Carmen, Campeche.
Oil rigs are seen off Ciudad del Carmen, Campeche. The tumble in global oil prices has sent Mexico’s currency to a record low, but the news isn’t all bad.

Mexico’s non-oil tax revenue climbed 27 percent in 2015 from the previous year, double the fastest rate since at least 2003, according to the Finance Ministry.

Income from government services and state-owned companies other than Pemex, contribute another 25 percent to the total federal intake, Bloomberg reports.

The government in the past two years has implemented a sweeping tax increase aimed at weaning the nation off its dependence on crude oil sales.

Oil and gas drilling represented only about 5.3 percent of Mexico’s gross domestic product last year, about half the level from two decades ago, when NAFTA took effect, and today is dwarfed by manufacturing and service industries such as tourism.

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