Introduction
Washington, D.C. The World Bank has reduced its growth expectation for Mexico’s Gross Domestic Product (GDP) this year by 1.5 percentage points, marking the largest downward adjustment among fifteen Latin American economies it reviewed.
Economic Outlook and Key Players
Regional economists, led by William Maloney, estimate that Mexico’s economy will show zero growth this year. This projection is influenced by increased uncertainty surrounding the United States’ trade policies and evidence that Mexico, along with the rest of Latin America, might be left out of the “nearshoring” trend.
Nearshoring and Trade Policy Uncertainty
“The least dynamic scenario is complemented by greater uncertainty regarding the trade policies of our main trading partners, which are the United States, China, and the European Union,” according to the World Bank report.
Competitor Asian Countries
The report highlights that Mexico’s main competitors, Indonesia and Vietnam, have gained more market share in the United States compared to Mexico due to the relocation of businesses. President Donald Trump imposed tariffs of 32% and 41%, respectively, on these countries.
International Organizations’ Adjustments
Alongside the World Bank, both the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) have lowered their growth expectations for Mexico since March. The IMF and OECD anticipate an economic contraction.
Diversifying Trade with Europe
According to the World Bank, which focuses this time on the economic impact of organized crime and violence in Latin America and the Caribbean, Mexico and Mercosur partner countries are accelerating trade with the European Union to diversify their commerce.
Opportunities and Risks
While this increased integration has created broad opportunities for regional businesses and workers, it also means that a significant portion of the workforce is employed in export-oriented industries, making them vulnerable to international trade fluctuations.
Key Questions and Answers
- What is nearshoring? Nearshoring refers to the relocation of businesses or operations to countries closer to home, in this case, Mexico and other Latin American nations.
- Why is Mexico’s growth expectation being cut? The World Bank, OECD, and IMF have reduced their growth expectations for Mexico due to increased uncertainty surrounding U.S. trade policies and evidence that Mexico might be left out of the nearshoring trend.
- Which countries are Mexico’s main competitors in nearshoring? Indonesia and Vietnam have gained more market share in the United States compared to Mexico due to the relocation of businesses, with tariffs imposed by President Donald Trump.
- What is the rationale behind diversifying trade with Europe? Mexico and Mercosur partner countries are accelerating trade with the European Union to reduce dependence on any single trading partner and mitigate risks associated with international trade fluctuations.
