Mexican industry

Fitch: Nearshoring to Mexico expected to boost GDP growth by 2.4% in 2024

30/01/2024
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Nearshoring activities to Mexico are expected to play a critical role in boosting the country's GDP in 2024, surpassing the average forecast analysis for Latin American countries. This expectation is based on data from 47 financial firms, consulting agencies, and brokerages compiled by FocusEconomics and published by El Economista.

Fitch Ratings forecasts a 2.4% increase in the Mexican economy after adjusting its previous quarterly projection upward. This surpasses the expected growth rate for Latin American economies, set at 1.6%. The rating agency believes that the country will continue to benefit from exports to the United States market and the relocation of Asian, European, and North American companies and investments to Mexico.

 

Nearshoring to Mexico is a key to keeping the boost in economic indicators

Nearshoring to Mexico remains crucial to keep the boost in economic indicators. The year 2024 is anticipated to mark the third year of stabilization and moderation in global economic dynamics following the post-pandemic recovery that started in 2021. During that period, Latin American indicators surged, reaching a 7.2% growth rate. In the same vein, Mexico rebounded from a contraction scenario to achieve a 5.7% growth this year.

Since 2021, nearshoring has been pivotal for the growth in the Mexican economic and industrial dynamics, boosting manufacturing and logistics activities in various regions of the country and leading to record low vacancy rates in the availability of industrial spaces.

The manufacturing of automobiles, home appliances, and electronic devices are areas where Mexico offers favorable conditions for foreign enterprises to develop their activities and reach the United States market.

Workforce technical capacities, a uniform time zone with the United States, and the USMCA Trade Agreement allow enterprises with production operations in Mexico to sell their articles in the United States with fewer taxes and tariffs than when they export goods from other regions. It brings Mexico an advantage in receiving important foreign investments and developing various areas to improve its industrial capabilities.

Regarding investments in nearshoring to Mexico, the federal government has announced tax policies and benefits to boost production dynamics and sustain economic growth, aiming to establish the country as a regional logistics and manufacturing hub. This has attracted the technological, aerospace, and pharmaceutical industries, keeping growth dynamics, especially in automobile manufacturing.

 

Renewing infrastructure: the primary challenge for nearshoring growth

Renewing infrastructure remains the main challenge for nearshoring to Mexico's growth. Despite growth in Foreign Direct Investment (FDI) in recent years and efforts to boost production activities, a thorough analysis is crucial to assess results.

Eduardo Saucedo, a Finance and Economics professor for EGADE, notes that while FDI indicators show growth, much of it is related to retained earnings rather than new enterprise arrivals. This signals the need to modernize existing machinery but lacks evidence of significant industrial growth.

Regarding nearshoring to Mexico enterprises’ attraction, the country still faces challenges such as guaranteeing energy supply and meeting public infrastructure requirements, especially in southern regions, to consolidate as an important option for multinational enterprise relocation and the establishment of a logistics and industrial regional hub.

Nearshoring to Mexico offers the country a pathway for improving its economy, but it’s key to acquiring the capacities to provide foreign enterprises with the resources they need to establish a relevant operations volume in Mexico and boost value generation.

In this scenario, Frontier Industrial offers industrial land for sale and buildings for rent in the country’s most important areas, supporting nearshoring to Mexico initiatives. If your company is looking to relocate operations to Mexico, please contact us and develop your project.