Mexico’s Nearshoring Momentum Slows Amid Weak Investment

Mexico’s role as a favored nearshoring destination continues, but momentum is showing signs of moderation. Recent business perceptions from the Bank of Mexico’s (Banxico) Regional Economies Report and the latest investment data from INEGI point to a more cautious outlook for the country’s relocation trend.

In the “Business Perceptions on the Evolution of the Relocation Process in Mexico in the Context of Global Trade Tensions” report, Banxico surveyed large firms with over 100 employees across manufacturing and non-manufacturing sectors the impact of global trade frictions and supply chain shifts. The results show that relocation toward Mexico remains active, but a declining share of companies report tangible benefits in terms of production, sales, or investment. Firms more deeply integrated into global value chains, particularly in the automotive, electronics, and machinery sectors, continue to see stronger gains, while those outside these industries report weaker or negligible impacts. Regionally, the northern states are capturing the largest benefits, while the central and southern regions lag behind.

The slowdown is attributed to several factors. Executives point to increasing US protectionism, the fact that many relocation decisions were already implemented in previous years, and persistent structural challenges in Mexico such as infrastructure bottlenecks, regulatory hurdles, and regional disparities. Because the study is based on perceptions, it reflects sentiment and expectations rather than concrete investment or trade flows. Still, it offers a valuable look into how companies on the ground are interpreting the shifting landscape of global supply chains. Overall, businesses appear more cautious about expecting fresh relocation-driven gains, as incremental opportunities are proving harder to capture.

Data from INEGI’s latest Monthly Indicator of Gross Fixed Capital Formation for June 2025 reinforces this more reserved outlook. The report shows that overall fixed investment fell by 1.4% compared to May and by 6.8% compared to June of the previous year, in real terms. Investment in machinery and equipment, both domestic and imported, declined by 1.6% month-on-month and by 11.4% YoY. Within this category, the contraction was sharper for domestically produced equipment than for imported goods. Construction investment also slipped, down 0.8% from May and 3.3% compared to the same month of 2024.

The breakdown highlights deeper weaknesses. Private sector investment declined by 3.9% year-on-year, while public investment contracted by a steep 24%, underscoring the weakness of state-led spending at a time when infrastructure projects are needed to support relocation dynamics. The data shows a broad-based pullback in capital expenditures, particularly in machinery and equipment, the very kind of investment that would normally expand if nearshoring activity were gaining strength.

The divergence between business perceptions and official investment data tells a consistent story. Cooling expectations suggest that the easiest relocation gains have already been achieved, and further moves now require larger commitments and greater risk tolerance. The decline in machinery and equipment investment indicates that companies are delaying or scaling back capital expenditures in response to tighter global financial conditions, uncertainty about demand, and Mexico’s structural limitations.

The sharp contraction in public investment highlights another concern: without stronger government spending on infrastructure, the private sector lacks the complementary support it needs to sustain relocation. This imbalance could exacerbate regional disparities, with northern states continuing to capture the lion’s share of investment due to their proximity to the United States and established industrial ecosystems, while central and southern states remain less connected to global production networks.