The forecasts were bleak. At the end of 2022, the Mexican economy stood out among its Latin American peers for being the last to recover pre-pandemic gross domestic product (GDP), and the United States was at high risk of recession. Economists from investment banks and analysis firms forecast growth of just over 1% for Mexico. The Treasury, for its part, estimated growth of 3%, but it was not the first time that the government had dared to be extremely optimistic.
Twelve months later, Mexico's GDP growth is expected to exceed even government estimates, thanks to a solid labor market, strong consumption and, most surprisingly, robust activity in the United States. This proved to be the most unpredictable variable as history shows that the US tends to contract when interest rates rise significantly. In response to potentially new dynamics created during the pandemic, the world's top economy could grow 2.6% this year, according to the Federal Reserve.
The White House's efforts in recent years to decouple the U.S. economy from China's have begun to have a positive impact on Mexico. The country dethroned the Asian country this year to become its northern neighbor's most important trading partner. Chinese exports to the United States fell 25% in the first quarters of the year, while Mexican exports rose 4.3% in the same period, according to Commerce Department data. In October, Mexican exports totaled a record $42.9 billion, according to the latest data from the U.S. Census Bureau.
Additionally, the promise of nearshoring has gained momentum this year. Hostile trade rhetoric between the United States and China has sparked interest among companies to leave the Asian country for “allied” countries, and Mexico, framed by the T-MEC, is causing uproar. Foreign direct investment (FDI) is at historic records. The Ministry of Economy assures that the private initiative published 363 investment announcements between January and November, with the expectation of investing 106,418 million dollars in the next three years, equivalent to 6.4% of the GDP of 2022. The people who arrived this year came from foreign companies that were already established in the country. However, the horizon of nearshoring is measured in the medium and long term.
The mere promise sparks optimism in the country, as highlighted by international analyst Ian Bremmer, who met with President Andrés Manuel López Obrador in March. “Ultimately, I heard more optimism about Mexico's future (from business people, journalists and the 'man in the street') than ever before,” he said in a social media post. “Nearshoring is important.” greater spending for the Mexican people.”
Three men view the products in the window of a store in central Mexico City on December 18. Ana Chirino
Social welfare plays a role in the behavior of the economy, at least in the short term. Combined with the increase in the minimum wage and income from remittances from abroad to relatives in Mexico, consumption increased. Like the push of a button is the spill left by Taylor Swift's concerts in Mexico, which grossed 1,033 million pesos in one weekend.
Remittances, foreign investments and the attractive interest rate of Mexican financial instruments (defined by the central bank's target interest rate) also led to an increase in the exchange rate, which appreciated by 13% against the dollar this year. In a country where the scars of past hyperinflation and devaluations are still visible, the strength of the Mexican peso has also sparked optimism. For those with high purchasing power, this meant importing more goods and traveling abroad.
With informality and unemployment down to their lowest levels ever, the labor market in the country looks robust. The forecasts for 2024 are good, but not as good as expected to close out 2023. In a survey conducted by the Bank of Mexico, businessmen from the center and south of the country argued that demand for loans is falling due to the uncertainty associated with the process. election campaign, suggesting that investments will be postponed until after the June 6 election. In the north of the country, managers assured that they had benefited from the fact that their dollar-denominated inputs continued to be quoted at low prices.
However, the report states: “They noted that some companies have postponed their investments due to the expectation of greater political uncertainty due to the upcoming electoral processes.” Respondents indicated that the duration of the procedures before the public sector had increased, which would also lead to a slowdown in investments.
A preliminary measure of economic activity released by Inegi on Friday showed there was an unexpected fall of 0.08% in October, surprising the market. But despite these fluctuations, the economy remained sluggish. “Our forecast suggests an economic growth rate of 3.5% in 2023, with a carryover effect of 1.5% for 2024, allowing us to maintain our forecast of 2.7% for 2024,” analysts at analyst firm Credicorp wrote , based in Bogotá. This is in line with the Mexican government's estimate of growth between 2.5% and 3.5% next year.
“Although we expect weakness to come, high-frequency indicators suggest that the composition of domestic demand this year has been more robust than expected,” Credicorp wrote in its final report of the year on Mexico, following the recurring theme: How Mexico has challenged everyone Forecast for 2023 and could do it again next year.
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