Mexico’s Robust Growth and the Emerging Nearshoring Landscape

Mexico’s economy maintains its momentum, with the Gross Domestic Product (GDP) growing at a quarterly rate of 0.9% and an annual rate of 3.6% in the second quarter of the year, driven by the Services Sector, while the Manufacturing Sector’s pace garners attention. Fitch Ratings predicts a promising horizon with the rise of Nearshoring, propelled by strong external demand, solid manufacturing exports, and increased remittances.

According to the timely data released by the National Institute of Statistics and Geography (INEGI), the GDP expansion occurred with seasonally adjusted and real figures.

In comparison to the first quarter of 2023, the timely GDP of the Services activities saw a 1% growth, while the Primary activities and the Services Sector increased by 0.8%.

When compared to the same period last year, the Services Sector expanded at an impressive rate of 4.1%, and the Industrial Sector at 2.6%.

Together, these two sectors constitute over two-thirds of the GDP. Additionally, economic activities associated with Fishing, Agriculture, and Livestock saw an annual growth rate of 2.5%.

Looking at the original figures, which the market follows for projections and are expressed without calendar effects, the growth rate for the first quarter is 3.7%, based on preliminary data. The second quarter maintains a similar rate of 3.7%, as do the first six months.

Throughout 2022, the GDP grew at 1.9% and 2.4% for the first and second quarters, respectively. In the third and fourth quarters, the growth rates were 4.3% and 3.5%, resulting in an overall annual growth of 3%.

Gabriela Siller, director of economic analysis at Grupo Financiero Base, highlighted that the second-quarter economic activity already exhibits a 2.37% expansion when compared to 2019, the year before the Covid-19 pandemic.

Experts noted the progress made compared to the first three months, with the Industrial Sector accelerating from 0.59% in the first quarter, registering its most substantial growth since early 2022.

While the Services Sector decelerated from the 1.50% growth rate in the first quarter, it still remains well above the average quarterly growth of 0.64% seen in 2021 and 2022, as emphasized by Siller.

Carlos Morales, Fitch Ratings’ director of sovereign ratings for Latin America, underscored that the strong external demand has translated into robust manufacturing exports and increased remittances for Mexico.

Although investment continues to be hindered by sluggish construction growth, machinery and equipment have shown sustained dynamism in recent quarters, indicating an increased demand for Mexican manufacturing production, possibly due to the effects of Nearshoring.

“The Nearshoring remains a significant growth opportunity for Mexico, given the growing tensions between the United States and China,” Morales pointed out.

The expert also highlighted that a robust labor market and strong remittances continue to support domestic consumption growth. However, he anticipates that the restrictive monetary policy stance by the Bank of Mexico, with benchmark interest rates at 11.25%, may impact growth for the remainder of 2023.

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