2023: A Year of Economic and Global Security Challenges
STORY INLINE POST
The previous year, 2022, was an inflation and interest rates roller coaster and 2023 definitely seems to be similar. The more expensive bank loans and credit becomes, there is a bigger risk of a slowing economy in the coming months. Even with all predictions aside, the US is expected to slow down in a potentially harder than soft landing, with the real estate industry forcing a harder fall than the 2008 crisis. Also to be taken into consideration is the illegal invasion of Ukraine by Russia, which has seen its economy semi-demolished, with record low foreign investment and record unemployment, while creating a dangerous path forward with Ukraine having no intention to reach a peace agreement while Russia continues to hold the Eastern Region hostage, basically affecting the entire supply chain worldwide. There are efforts to keep helping Ukraine defend itself against the aggression with more arms and tanks, with no end in sight. This could also worsen over time if it escalates. One scenario is a) a new peace agreement or standoff pact or, b) both parties agree to Ukraine ceding territory to Russia under special circumstances but Ukraine would negotiate new trade agreements with the EU. These are two scenarios that, right now, seem unrealistic given the nonstop missile and drone attacks on Ukraine territories. Only time will tell what comes next.
As far as prices are concerned, basically all commodities have risen by about 30% and, in some cases, even up to 70%. The uncertainty is not helping balance the basic economic needs of households. For the travel industry, a year of recovery on the tourism side, the industry is cautious, waiting to see if the new COVIDvariants will spike back up now that China has entirely opened its borders after three years of lockdown. The “Zero COVID”policy kept China’s economy from getting back on track. There are also concerns that China could invade Taiwan. Trade tariffs applied by the previous US administration continue to this day, and reshoring, called “nearshoring” here, is heating up. However, while this relocation of overseas companies looking away from China has Mexico well-placed to take advantage, our country lacks enough green energy reserves to relocate the billions of dollars in value these companies have established in China. We are producing even less energy than two years ago and our key infrastructure is not up to par to support these huge foreign investments. Other countries are winning this prize as we have seen the numbers tick up in Vietnam, for example,with an 8% YoY GDP increase in 2022 and India with a 7.7% YoY GDP growth.
The Mexican economy benefits from Mexican nationals who immigrated to the US and who have sent a record 21% YoY more money back to their families in Mexico, greatly helping family economics in the poorest communities. We have one of the best opportunities on the planet when it comes to foreign investment, given our relationship with the US and Canada. 2024 will see the 30th anniversary of the North American Free Trade Agreement and we have become a powerhouse region. Exports surpass imports. Negotiations are underway in terms of food security, border control and the drug war. Most of all, energy trade is now the most important topic. Fiscal reform does not seem like a priority in the next two years despite federal tax collection hitting records in the last four years. The goal is to make it sustainable. One of the main concerns for the USs and Canada is the security of visiting citizens to key tourist spots because of the drug violence that has increased tremendously in the last four years. New strategies to combat this situation are needed with a lot more intelligence and ferocity before it becomes a national security risk again. Both US President Joe Biden and Canadian Prime Minister Justin Trudeau have convened with our President to make new commitments to accomplish a New Unity Act against drug gangs.
In other developments, overall for the aerospace industry, there is great news as 2022 was a year for recovery, with traffic back to 2019 levels, pushing passenger and cargo demand to new levels, causing a spike in MRO, retrofitting and makeover work despite a labor shortage. This is forcing even more companies to go digital in all aspects of their technical and manufacturing areas or risk being left behind. Maintaining an efficient, lower cost operation has greatly benefited carriers like Aeromexico, Viva Aerobus and Volaris. The increase in demand for new aircraft has recently also put Boeing and Airbus, the world’s largest OEM aircraft makers, in a better position than the last decade as the economy rises to pre-COVID levels. More and more companies are looking to expand their operations in Mexico if the current scenario holds, given the upcoming demand for aircraft worldwide. Talent needs to be trained consistently and specialized for these same companies to continue their expansion. Baja California, Chihuahua, Nuevo Leon and Queretaro are the main hubs for aerospace and newcomer states like Sonora, Yucatan and Guanajuato are making big bets on investment in talent and infrastructure to compete and further integrate the industry.
At the same time, the automotive and agriculture industries will grow but will also require new, qualified talent. If the trend continues, we may be able to overcome most of the lockdown controls entirely and enter the endemic phase of COVID at last in 2023. Many challenges lie ahead but Mexico is well positioned to make this year a very good one if the current economic scenario remains similar to 2022.