Mexico’s Infrastructure Push: A First Step Out of Low-Growth Trap

After many years of underinvestment, Mexico’s infrastructure bottlenecks are becoming increasingly visible, limiting economic growth and constraining private investment. The federal government recently announced a MX$5.6 trillion (US$325 billion) infrastructure plan for the period 2026-2030. If successful, the plan will help address infrastructure deficiencies in key sectors, such as energy and transport, and encourage private investment. Infrastructure spending is a step toward sustaining capital formation growth and increasing productivity in the long run. Improving the rule of law (especially after the judicial reforms of recent years), and investing in education and retraining programs are also necessary conditions.

Mexico’s economic growth story is disappointing, to say the least. Annual real gross domestic product (GDP) growth averaged 1.4% in the last 10 years (2016-2025), lagging OECD members (1.9%) and regional peers, such as Brazil (1.6%), Chile (2.1%), Colombia (2.6%), and Peru (2.7%). Only in 2025, Mexico’s economic activity barely expanded at a rate of 0.5% (0.7%, seasonally adjusted), according to preliminary data.

Insufficient investment, declining productivity, rigidities in factor allocation, and a weak institutional framework pushed Mexico into a low economic growth trap. Many observers have frequently pointed out that, for the country to achieve economic growth rates of 2% or higher, gross fixed investment as a percentage of GDP must sustainably reach 25%. The fact is that the 10-year average stands at 23.3%. It even fell short in 2023 (23.8%) and 2024 (24.3%), as the country benefitted from a wave of nearshoring related projects, and as public capital expenditure on pet projects accelerated in the run-up to the 2024 general elections. Even worse, fixed investment as a share of GDP reversed last year to 22.5% (estimated), amid mounting uncertainty triggered by changes in the domestic institutional framework and trade disputes with the United States.

Capital accumulation usually leads to a higher output per worker, and vice versa. Therefore, it is not surprising that, due to underinvestment, labor productivity – measured as GDP by hours worked – contracted between 5-6% during the last decade in Mexico. Other measures point in the exact same direction. Total factor productivity growth (TFPG), which is often more closely associated with innovation and efficiency in the allocation of inputs, contracted in seven of the last 10 years between 2015 and 2024, with an average negative annual growth rate of 0.1%.

The Promise Embedded in the Infrastructure Plan

All the above highlights the need to invest more and to do so more intelligently, rather than allocating limited resources to pet projects with limited economic feasibility. In this context, the Mexican federal government announced an ambitious infrastructure investment plan for the period 2026-2030. The plan envisions allocating MX$5.6 trillion to 1,500 projects within eight key sectors, primarily energy and transportation, through mixed investment schemes.

If successful (and that's a big “if”), the project might help untangle the bottlenecks created after several years of underinvestment in infrastructure and encourage private capital expenditure. More concretely, infrastructure investment over the last 10 years has remained significantly below the 4 to 6% of the GDP recommended by international institutions, resulting in significant shortcomings in the energy and transport sectors (coincidentally, those with the most resources allocated in the infrastructure plan).

Infrastructure investment should be considered the first of many steps to foster fixed capital formation to the levels needed to sustain economic growth above 2% in the long run. Additionally, the country will be ready to seize the opportunities looming on the horizon, such as the regionalization of supply chains, also known by many as nearshoring. First of all, the federal government should find ways to create fiscal space for future capital spending and also make it a top priority in its budget. Secondly, the government should design incentive schemes to attract the private financing needed to complement public investment, especially in high-risk, low-return projects. Thirdly, while removing infrastructure bottlenecks can enhance private investment, another condition for capital formation is the improvement of the rule of law and the institutional framework in the country. This becomes particularly relevant in the aftermath of the reforms to the judiciary branch. Lastly, factor mobility (capital, labor) and greater investments in education and retraining programs are required to expand technology adoption, productivity, and innovation.