Nearshoring is Necessary but not a Recession Repellent

Opportunities for nearshoring to Mexico, Latin America and the Caribbean continue to add up, especially from Asian companies looking to relocate. These opportunities bring new jobs, increase economic movement and expand markets. While these investments will be essential to sustain inclusive growth and continue to receive investment, they will not wholly dispel the risk of a recession.

“Nearshoring could give us a good surprise for next year in terms of investment. However, I do not think it will be enough on its own to turn around the growth outlook, which is already in place and is 1.8 percent growth for 2023,” said Mario Correa Martínez, President, Mexican Institute of Finance Executives’ (IMEF) National Economic Studies Committee. 

Nearshoring in Mexico will boost local investment, resulting in the creation of value-generating networks in many fields, including business, labor, logistics and finance, as mentioned by BBVA Research. For that reason, the Mexican market should take advantage of these opportunities, said Mauricio Claver-Carone, president of the Inter-American Development Bank (IDB). The relocation of companies from Asia is equivalent to US$80 billion in investments for Latin America and the Caribbean. “From the promise of the US$ 80 billion in nearshoring that exists today and the region’s potential to drive green technologies to drive digitalization and strengthening healthcare, our Bank’s goal is to enable transformative outcomes,” said Claver-Carone.

Investment opportunities from a rewiring global economy could increase thanks to Mexico’s proximity to the US, but nearshoring investments will not be enough to change growth forecasts for 2023 or to reduce the risk of an economic recession, according to IMEF.

Despite having tools such as the Pacific Alliance that promotes trading with Singapore, Mexico has held back investments due to a lack of clarity in some key governmental factors. According to BBVA, one factor that could boost nearshoring is respect for the current legal framework, both mercantile and international, which would foster closeness in the transnational value network and increase Mexico’s attractiveness as a recipient of capital flows.