The World Bank lowered its economic growth outlook for Mexico, from a level estimated last April of 2.3% for 2024, to 1.7%; for 2025, the forecasts went from 2.1% to 1.5%; for 2026, the projections decreased from 2% to 1.6%.
In the report “Wealth Taxes for Equity and Growth”, the World Bank highlighted that in Mexico the level of private investment has increased, taking advantage of nearshoring and friendshoring opportunities, as well as public investment, particularly in infrastructure projects, and this has boosted economic activity.
However, in terms of foreign direct investment, the large jump observed in 2022 in Latin America and the Caribbean was almost entirely due to investments in the Brazilian resources sector, while flows to the nearshoring destination, Mexico, remained practically unchanged over the past ten years.
The World Bank said new investments in greenfield projects in Mexico quadrupled over the past two years, but still represent a small fraction of total projects.
However, it calculated nearshoring using a quantity indicator (NSQ), which quantifies the growth of a country’s exports resulting from the replacement of Chinese products in the US market, and Mexico stands out as the main beneficiary, accounting for 84% of total NSQ in Latin America and the Caribbean.
But the cumulative increase in Mexican exports over six years as a result of China’s displacement was just 4.7% of the total to the United States in 2023.
In relative terms, some Central American countries and Haiti benefited from Chinese export substitution over the past ten years. Mexico’s gains were concentrated in machinery and transport equipment, representing 1.7% of gross domestic product (GDP).
The World Bank also highlighted that in Mexico, increasing the minimum wage from a very low base resulted in a generally positive impact on social indicators, but regional experience shows that once the minimum wage reaches a higher level, any subsequent increase represents a burden for companies of all sizes that can discourage job creation, cause unemployment, increase informality and even poverty.
Furthermore, many social benefits are indexed to the minimum wage, putting stress on public budgets and complicating fiscal adjustment. The labor market does not have infinite resilience, so governments must proceed with caution, it warned.
Source: forbes
