Introduction
Mexico has witnessed a significant decline in new foreign investment, dropping from an average of 14 billion US dollars to less than 2 billion US dollars expected by 2025. Meanwhile, the nearshoring concept, which was once hailed for its potential benefits like increased productivity, economic growth, and job creation, seems to have faded away.
The Fall of New Investment
Experts argue that the decline in new investment is not solely due to global economic downturns but also stems from internal factors such as legal uncertainty, political commitment, and economic instability.
- Legal Uncertainty: There are over 20 wind energy projects granted by Mexican authorities but remain in litigation without operating permits, causing significant distrust among investors.
- Economic Instability: The private investment has fallen by 9% interannually, while public investment has plummeted by 21.2%. This has resulted in a 7.3% interannual decline in fixed capital formation, with construction down by 5.9% and machinery & equipment by 8.8%.
- Automotive Sector Impact: Some automotive plants have already relocated, and technology & consumer firms, both domestic and foreign, are on hold, awaiting decisions from Claudia Sheinbaum’s government and T-MEC agreements.
Economic Growth Concerns
Mexico’s growth, which averaged around 2%, is expected to barely reach 1% in 2025. The uncertainty intensifies as 2026 approaches, marked by the T-MEC review with the US and Canada. Reducing the deficit from 6 to 3 or 4 for the following year, as proposed in the 2026 budget, is crucial to stabilize the country and avoid negative ratings from international credit agencies.
Key Questions and Answers
- Q: Why is new investment in Mexico declining? A: The decline results from a combination of global economic factors and internal issues like legal uncertainty, political commitment, and economic instability.
- Q: What is the nearshoring concept and why is it relevant to Mexico? A: Nearshoring refers to the practice of relocating business processes to neighboring countries, like Mexico. It was once seen as beneficial for increased productivity, economic growth, and job creation.
- Q: How has the automotive sector been affected? A: Some automotive plants have already moved out, and technology & consumer firms are hesitant to expand due to uncertainties surrounding government decisions and T-MEC agreements.
- Q: What are the economic growth projections for Mexico? A: Mexico’s growth is expected to barely reach 1% in 2025, with further uncertainty surrounding the 2026 T-MEC review with the US and Canada.
- Q: Why is deficit reduction important for Mexico? A: Reducing the deficit to 3 or 4 in the following year is crucial for stabilizing the country and preventing negative credit ratings, which would further erode investor confidence.
