Mexico’s economy isn’t growing. What can be done? A perspective from our CEO

Mexico’s system is stuck. After crisp contraction successful 2020 followed by a post-COVID bounce-back, the system has slowed to adjacent 1% maturation for the past 2 years. This is importantly beneath the planetary maturation complaint of implicit 3% and particularly troubling fixed that determination are nary existent outer shocks that tin beryllium blamed for it.

Mexico’s erstwhile president, AMLO, inflated maturation rates during his word successful portion with important national authorities spending. From caller airports successful Mexico City and Tulum, to the caller Maya and Interoceanic trains, to the Dos Bocas mega-refinery, the national authorities was doing much than its portion to prop up growth. The large question galore had astir these projects was, “Are they one-time maturation spurts, oregon are they mean oregon semipermanent maturation enablers that volition assistance fundamentally amended aboriginal maturation prospects for the country?” Infrastructure projects, if well-thought-out, should beryllium medium/long-term maturation enablers. But they bash instrumentality time, and astir surely these projects are not yet helping to supply a prime up successful economical growth.

Like galore infrastructure mega-projects, the Maya Train boosted Mexico’s short-term maturation portion it was being built. Whether it tin besides present semipermanent returns remains to beryllium seen. (Mara Lezama/X)

Foreign nonstop concern announcements proceed to deed grounds highs, but they besides instrumentality clip to interaction the system and sometimes don’t hap astatine all. The caller summation successful the magnitude of “new” concern dollars successful FDI (versus axenic reinvestment of profits) has been an encouraging sign. Tourism numbers are up 13% year-to-date (with spending up implicit 6%), which is large news. But tourism is not large capable to importantly determination the country’s full GDP numbers yet.

In the past, speech complaint devaluations of the Mexican peso would often supply a accordant maturation spurt. Over a 25 twelvemonth play and up until the COVID pandemic, the peso has averaged an yearly devaluation versus the US dollar of astir 10%. Given Mexico’s comparatively debased ostentation and debased wages, this consistently helped guarantee that the outgo of doing concern oregon investing successful Mexico kept getting cheaper, astatine slightest successful dollar terms. This could beryllium counted connected twelvemonth aft year, and provided a bully basal lawsuit for making investments successful the country. But fixed that the peso has really strengthened portion costs person accrued present for 5 years, the certainty astir that long-held presumption is over. So portion a important devaluation of 20% oregon much successful the peso would astir surely supply a maturation injection, determination person been nary indications that 1 is likely. In fact, the peso has continued to fortify lately, with it precocious hitting 18 period highs against the USD.

With the Trump medication making caller and ever-changing tariff threats towards Mexico connected a adjacent play basis, what is Mexico to do? How tin the system get increasing again astatine oregon supra its potential?

1. The astir impactful (albeit not precise likely) script that could get the system increasing again would beryllium a speedy and favorable (for Mexico) result connected the USMCA negotiations. This would supply clarity for businesses and investors connected the relation of Mexico successful the North American proviso chain. Too galore companies close present bash not person certainty arsenic to whether Mexico going guardant volition person escaped commercialized with the U.S., debased tariffs, oregon possibly adjacent higher tariffs compared to different countries. With that grade of uncertainty, it seems improbable that Mexico’s system tin get increasing upwards of 3% again.

In the aftermath of Trump’s tariff chaos, Mexico’s system needs a rethink: A position from our CEO, Part 3

2. Another script would beryllium for President Sheinbaum to propulsion done reforms allowing for much overseas concern successful the areas of vigor extraction, accumulation and organisation (current monopolies held by PEMEX and CFE). These economical segments could and should beryllium important maturation drivers of the economy, yet are presently doing thing to help. If Sheinbaum was capable to usage her popularity to propulsion done betterment successful these areas and show that Mexico is “open for business” successful shale state production, lipid extraction, vigor accumulation and organisation (natural gas, solar, wind) — it would spark a monolithic inflow of investment. Given Mexico’s agelong past of protectionism successful these areas, it would not beryllium an casual task. But fixed her astir 70% popularity, if anyone is up to it, it’s Sheinbaum.

3. Governments often look for “shovel-ready” infrastructure projects that tin get started close distant and rapidly interaction the economy. Sheinbaum has immoderate of these already started with a important nationwide road betterment plan. She is besides doubling down connected rider bid investments passim the country. Both are bully productivity enablers implicit the mean term, but volition not person a meaningful interaction successful the abbreviated term.

4. Public acquisition continues to beryllium a large contented successful Mexico, arsenic I person antecedently written astir here. This successful crook impacts labour productivity maturation and yet is simply a resistance connected the economy. Sheinbaum needs to prioritize this issue, possibly by announcing immoderate public-private partnerships that could accelerate acquisition attainment and results. A existent committedness successful this country would apt beryllium matched by backstage concern that could supply accrued grooming programs successful higher accomplishment jobs that necessitate the quality to usage AI and robotics.

5. Tax policies are often utilized to accelerate concern and growth. Sheinbaum could denote initiatives ranging from accelerated depreciation of superior instrumentality investments, peculiar taxation attraction for AI and robotics investments, and taxation incentives for companies that adhd caller hires and put successful grooming and upskilling their workforce. All of these would steer backstage superior into areas that could rapidly marque an interaction connected the economy.

6. The Sheinbaum medication could make peculiar incentives and economical improvement areas to further accelerate the maturation of Mexico’s work sector. As I person antecedently written here, I deliberation that Mexico has tremendous untapped imaginable successful galore segments of the work economy. New initiatives, caller taxation policies, and accelerated authorities approvals successful work sectors similar education, elder centers, lodging (for Mexicans and expats), wellness care, wellness and tourism would further diversify the system distant from manufacturing and oil. With the close support, each those sectors could beryllium hitting double-digit growth.

Of course, nary of these options are easy. But if Mexico is superior astir sustainably increasing its system astatine oregon supra 3%, and successful crook superior astir improving the lives of its citizens — not lone with minimum wage increases but besides existent economical maturation — it volition person to tackle astir of them.

Travis Bembenek is the CEO of Mexico News Daily and has been living, moving oregon playing successful Mexico for astir 30 years.