Mexico's 2024 Economic Outlook Relies on Spending, Investment

Mexico's economic outlook for 2024 heavily depends on consumer spending and fixed investment, both crucial for supporting growth amid governmental transitions. According to Monex analysts, the economy expanded by 1.6% annually in the first quarter. Investment in fixed assets, which makes up 24.1% of GDP, maintained momentum despite a slight dip from late 2023, illustrating resilience with four consecutive quarters above the 24% mark.

In the venture capital (VC) landscape, Mexico has experienced remarkable growth, with over US$9.4 billion invested in startups to date, noted Liliana Reyes, CEO, AMEXCAP, in an article for MBN. Recent years have seen a surge, with 88% of historical investments made since 2019. VC and private equity funds have supported over 550 companies between 2021 and 2023, generating 14,000 new jobs and significantly contributing to SME development.

Private consumption added 2.5 percentage points to this growth, showing robust performance boosted by early disbursements of government programs. Analysts expect these sectors to remain economic pillars, though growth may moderate as new administration policies take effect.

Private consumption is a vital driver of demand-side growth, according to INEGI, with consistent quarterly gains exceeding 1% over nine periods. Meanwhile, cautious optimism surrounds public investment, which grew 0.8% in Q1 despite a 0.1% dip in public infrastructure spending, indicating fiscal restraint amid efforts to reduce the fiscal deficit to 3% of GDP.

“This underscores the growing interest and consolidation of the Mexican VC ecosystem, reaching an investment in Mexican startups of just over US$623.7 million,” writes Reyes. “However, the global macroeconomic environment impacted the investment decisions of some funds, causing them to be more cautious. This slowed the pace of new investments as they focused on consolidating their current portfolios. This adjustment created a more challenging environment for entrepreneurs seeking financing.”

Last year saw sectoral diversity in VC investments, with tech sectors like fintech, edtech, and healthtech leading the charge. Despite a global economic slowdown influencing some funds to adopt cautious strategies, Mexican VC investments totaled US$623.7 million, according to Reyes. This inflow was attributed to the country’s macroeconomic stability, supportive public policies, and robust trade agreements promoting international investments. Clean energy and sustainable technologies have emerged as focal points, aligning with global trends towards environmental responsibility.

Challenges like capital accessibility and sectoral inclusivity hinder startup growth, but initiatives promoting gender and regional equity are crucial for expanding VC's reach and impact across diverse sectors, says Reyes. The shift towards sustainable practices and social responsibility presents new avenues for VC growth and innovation in Mexico.

“With the support of authorities, favorable public policies, greater inclusion and diversity, as well as a renewed focus on innovation and access to capital, Mexico is well-positioned to establish itself as a leader in the VC ecosystem of Latin America and beyond,” Reyes concludes.