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Sunday, October 1, 2023

National celebration with nearshoring!

The rating agency Fitch Ratings raised its growth forecast for Mexico in 2023 to 3.1 percent from 2.5 percent forecast in June.

In its Global Economic Outlook September, published this week, highlighted the positive behavior of investment and the strength of consumption.

According to Fitch, economic growth has benefited from robust consumption due to the strength of the labor market and unexpectedly strong growth in private investment.

The report mentions that private investment has grown notably in the last two quarters, particularly non-residential construction and investment in machinery and equipment.

This continues to indicate the increase in demand for Mexican manufacturing production due to the effects of the relocation process of companies or nearshoring.

In this regard, “we anticipate that he nearshoring It will be an important growth opportunity for Mexico in the next three to five yearsas the announced investment projects are executed.”

Even so, from Fitch’s perspective growth in 2024 will slow to 1.8 percent and in 2025 it will have a recovery of 2.3 percent.

What is relevant is that, in terms of the benefits of nearshoringthe rating agency anticipates a boost to the growth of the Mexican economy for five years.

Mexico already reflects the effects of the relocation process, but its benefits are incipientaccording to the opinions of business executives interviewed by the Bank of Mexico.

In its Report on Regional Economies for the period April-June 2023, the results of a survey – carried out in July – are announced in which, among other things, its business contacts are asked about the impact of relocation in its production, sales or investment in the last 12 months, from June 2022 to the same month of 2023.

It investigates whether these changes could be attributed to domestic or foreign demand due exclusively to the strength or weakness of economic activity, consumer purchasing power, or consumption patterns; or, where applicable, to foreign direct investment or demand for the goods or services of your company due exclusively to the nearshoring.

The survey shows that 24.7 percent considered having benefited from the effects of greater demand and only 9.3 percent perceived favorable impacts due specifically to the relocation process.

“Business perception confirms that relocation has had a positive impact on the different sectors and regions of the country, although in a differentiated way,” notes the Banxico report.

The percentage of companies with more than 100 workers that reported positive impacts due to this phenomenon was 11.9, 6.1, 9.8 and 5.7 percent in the northern, north-central, central and southern regions, respectively.

The proportion of companies who perceive to have been benefited for this factor in the manufacturing sector integrated into global value chains was 18.1 percenthigher than the percentage in the rest of manufacturing or in the non-manufacturing sector, where it was 4.2 and 8 percent, respectively.

As Banxico shows, unlike the 2022 uprising, this year’s business executives say they perceive more and more benefits derived from the relocation process.

For now, “the benefits observed so far do not reflect the magnitude of the total impact that relocation could have, since this It is expensive and will take time.”.

The main message is that “the relocation process to Mexico is underway and is anticipated to continue moving forward.”

Although they will not be as fast, it must be assumed that the effects of nearshoring will continue to have a positive impact on the Mexican economy.

Hurray Mexico!

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