Mexican Economy Could Slow Down in 2H23

Mexico’s economic growth is slowing down as the country enters the second half of 2023, contrasting with a steady rise in the first six months. An increase in import tariffs, the strong peso and the overestimation of nearshoring could point toward caution for local and foreign companies. 

Despite the optimistic projections, experts note a decrease in economic growth in most sectors of the Mexican economy. In June 2023, President Andrés Manuel López Obrador stated that Mexico will grow 4% in 2023, double what the International Monetary Fund (FDI) predicted, which estimated a rise of 1.7% in the Gross Domestic Product (GDP). The National Institute of Statistics and Geography (INEGI) shared that the Trimestral Internal Gross Domestic Product Estimate (EOPIBT) increased by 0.9% in regards to 1Q23. 

However, despite the economic growth the country experienced in the first half of the year, most of it is said to be due to the post-pandemic recovery. Banco Base, a Mexican financial group specialized in advising foreign companies investing in the country, stated in its April report that “[it] is estimated that Mexico will close 2023 with a GDP rise of 1.9%, which implies a fall in margin in the last two quarters of the year, that can be considered a recession.” 

The recovery from the COVID-19 may have been perceived as a rebound, even if the last four quarters accumulated growth of 3.77%, according to Banco Base. 

The EOPIBT mentions that in 2Q23 “at annual rate and with seasonally adjusted series, the timely estimate of GDP rose 3.6 % in real terms. By economic activity, the positive variations were: 4.1 % for tertiary activities, 2.6 % for secondary activities and 2.5 % for primary activities.” 

Nearshoring has been credited with an economic boom in Mexico that could increase the GDP by 2.5% in the next six years, according to an estimate by Consejo de Empresas Globales (CEEG). Others claim that it is too soon to see its real impact. The lower growth estimate suggests that the boost from nearshoring in the growth of FDI and GDP may have been overly optimistic. 

This week, the Ministry of Economy announced an increase to import tariffs as a measure to promote local production, which will increase prices in some goods like steel, ceramics and plastics. Additionally, a strong Mexican peso, which currently sits at MX$17.06 to the dollar, could cause further rise in import products, regardless of trade agreement status with Mexico. It could also impact remittances and tourism. 

Iván Arias Gallegos, Director of Economic Studies, Citibanamex, states that there are some indicators that have been showing the effects of the economic deceleration in Mexico, “particularly in the goods produced in Mexico, residential construction [projects] and the appreciation of currency exchange.”