Mexico is on track to exceed economic growth expectations this year

The Secretary of the Treasury of Mexico, Rogelio Ramírez de la O, arrived at the meeting of finance ministers of the APEC summit that took place on Tuesday in San Francisco with good news in his briefcase. Everything seems to indicate that Mexico is on track to exceed economic growth expectations this year, to the surprise of analysts and experts.

The second economy in Latin America lifted 5.1 million people out of poverty between 2018 and 2022, the official said at the event before his counterparts from the United States, Canada, China, Japan, Korea, Australia, Indonesia, Singapore, Taiwan, Thailand and Vietnam, according to an APEC statement. The focus of his presentation was on the social assistance policies of President Andrés Manuel López Obrador.

The macroeconomic and foreign direct investment (FDI) figures also look good. Multilateral organizations, rating agencies and even investment banks have been updating their growth forecasts for Mexico, surprised by the behavior of emerging markets in general, which have resisted financial volatility and shocks in global supply chains.

The Mexican Ministry of Economy registered a historic amount of FDI worth $32.9 billion in the third quarter of the year. Of this amount, 76% represents a reinvestment of profits by companies that are already established in Mexico, so it is possible that the investment expected by nearshoring has not yet arrived. The term indicates a global trend to relocate manufacturing operations from China to countries closer to their final market.

“Repeated positive surprises justify upwardly revised forecasts for Mexico’s growth projections,” Moody’s analysts wrote in a report published on November 8. Experts raised their growth estimates for 2023 and 2024 to 3.5% and 2.3%, respectively, compared to previous estimates of 3.3% and 1.9%. Moody’s analysts said that strong economic activity has been driven in part by strong investments, the completion of unfinished projects and nearshoring. They expect Mexico’s real gross domestic product (GDP) growth in 2025 to average “a solid 2.0%-2.5% as it continues to reap benefits from nearshoring.”

The Fitch rating agency, meanwhile, has raised its own forecast for Mexico to 3.1% of GDP since September, as did the World Bank and the International Monetary Fund. According to the survey of private sector specialists published by the Bank of Mexico in October, these experts raised Mexico’s GDP growth forecast for 2023 to 3.15% from a previous estimate of 3.04%.

Uneven growth

In a second report from Moody’s, published on Tuesday, the analysis firm warns that nearshoring is having an uneven economic impact in Mexico, since the states that have benefited from the highest proportion of investment are in the northern, central and western parts of the country. This includes Mexico City, Nuevo León, Mexico state, Jalisco, Chihuahua and Coahuila.

But several states still face limitations in continuing to attract foreign direct investment, warned Moody’s. States that have traditionally received FDI have public infrastructure that allows easy access to the United States, and they have a qualified workforce, said the analysts. However, the main limitations to ensuring the future flow of foreign investment are linked to the existence of sufficient industrial parks and public investment that ensures the necessary inputs for the operation, such as water and energy.

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