With a significant depreciation of the Mexican peso, five interest rate cuts, Tesla’s announcement that its Nuevo León gigafactory project is “paused,” tensions over Mexico’s trade and investment relationship with China, multibillion-dollar investment announcements, it’s been another eventful year for business and economic news in Mexico.
Foreign direct investment likely hit a record high in 2024, even as we continue to wait for the much-anticipated nearshoring boom to fully arrive.
At Mexico News Daily, we’ve closely followed business and economic developments this year, reporting on a wide range of data, scores of investment announcements and events that have crimped the economy and hurt investor confidence, such as the recently enacted judicial reform.
As 2024 draws to a close, here’s a look back at 10 of the biggest business and economy stories in Mexico this year. Many of the developments, events and issues outlined below had a significant impact on the economic situation in Mexico this year and, in several cases, will help shape the future the country will face in the years to come.
The rise and fall of the Mexican peso
The Mexican peso has been on a rollercoaster ride this year — one with far more downs (depreciations) than ups (appreciations).
The year started off well for the peso, and by early April, it had reached 16.30 to the US dollar, its strongest position in almost nine years.
Then, on the first Sunday in June, Mexico held its general elections, made Claudia Sheinbaum as the country’s first female president and voted in favor of a federal Congress dominated by the ruling Morena party and its allies.
The peso — trading at 17 to the greenback just before the elections — didn’t take kindly to the results.
The currency began to depreciate immediately, and by ten days after the elections had plummeted to almost 19 to the dollar due to factors that included the likelihood of Morena approving a range of constitutional reforms that former president Andrés Manuel López Obrador submitted to Congress in February.
Congress has approved more than a dozen of those reforms.
A range of factors had the peso trending weaker during subsequent months, including Donald Trump’s victory in the Nov. 5 presidential election in the United States.
The peso flirted with a 21-to-the-dollar rate on Nov. 6 but has recovered somewhat since then. At the time of publication of this article it was trading at 20.22 to the greenback.
Elon Musk pauses Tesla’s gigafactory project
When I sat down to plot out our “10 biggest business stories of 2023” article, I had no hesitation in including Tesla’s Mexico gigafactory announcement.
Elon Musk announced in March 2023 that the electric vehicle manufacturer would build a multibillion-dollar plant near Monterrey, Nuevo León, generating excitement across the country and especially in the northern border state governed by Tesla enthusiast and Governor Samuel García.
Almost two years later, one could reasonably expect that Tesla would have made significant progress with its gigafactory plans, right? Wrong.
Musk said in July that the gigafactory project in Nuevo León was “paused” because of the possibility that Donald Trump would impose tariffs on vehicles made in Mexico if he won the Nov. 5 presidential election in the United States.
And at that time, the Tesla CEO hadn’t yet openly cozied up to Trump, who has made several threats to impose tariffs on vehicles made in Mexico, even those manufactured by U.S. companies.
Economy Minister Marcelo Ebrard said last month that he would seek a meeting with Musk to discuss Tesla’s plans for Mexico, but at the time of publication of this article, there had been no reports of such a meeting taking place.
Will Tesla’s gigafactory project go ahead? Stay tuned in 2025.
Is Mexico’s nearshoring boom drawing nigh? Data suggests it is
The nearshoring trend — the relocation of companies to Mexico to shorten their supply chains and take advantage of a range of favorable business conditions — continued to receive significant media attention in 2024.
A year ago we asked this question: “Is Mexico on the verge of a nearshoring boom?”
The question is equally valid today.
While there are conflicting opinions, hard data indicates that Mexico can indeed expect to reap the rewards of an oncoming nearshoring boom.
Foreign companies continued to make investment announcements in 2024, unveiling plans to invest around US $65 billion in projects in Mexico. That amount — based on investment announcements made in the first nine months of the year — is on top of more than $110 billion in pledged investment last year.
If the majority of the announced projects actually go ahead — of which there is no certainty (see Tesla example above) — Mexico can indeed expect a nearshoring boom in coming years.
MND CEO Travis Bembenek looked at some of the other key nearshoring data in a recent column before opining that “we are still in the early innings of what will be a significant nearshoring opportunity for both Mexico and North America as a whole for years to come.”
Nearshoring to Mexico was a big story in 2024, but it could (or should) be an even bigger one in 2025, 2026 and beyond.
Major foreign companies announce Mexico projects
As noted above, foreign companies continued to announce plans to invest in Mexico this year, suggesting that a nearshoring boom is on the horizon.
Among the major companies that announced projects were:
- Taiwanese electronics manufacturer Foxconn, which said in October that it would build a huge factory in Guadalajara, Jalisco, where it will assemble “superchips” for U.S. technology company Nvidia. (Planned investment amount not disclosed)
- Houston-based company Mexico Pacific Limited, which in June announced an additional investment of US $15 billion in liquefied natural gas projects in northern Mexico.
- Amazon Web Services, which said in February that it intends to invest more than US $5 billion in a cluster of data centers in Querétaro.
- Swedish automaker Volvo, which announced in August that it had selected the state of Nuevo León as the site for its new North American heavy-duty truck factory, with an estimated investment of US $700 million.
All these projects, and many others, have the potential to provide a significant boost to the Mexican economy.
New FDI record to be set in 2024
Final numbers won’t be in until early 2025, but all indications are that a new record for foreign direct investment (FDI) in Mexico will be set in 2024.
The most recent Economy Ministry data showed that FDI exceeded US $31 billion in the first six months of the year, a 7% increase compared to the same period of 2023.
The Mexican Business Council for Foreign Trade, Investment and Technology (COMCE) predicts that FDI will total $38.41 billion this year, which would represent an increase of 6.5% compared to the record high of $36.06 billion in 2023.
There is some concern that the majority of the FDI in Mexico this year has been “reinvestment of profits” by companies that already have a presence here, rather than “new investment.”
But foreign investment of any kind represents confidence in Mexico, and the “new investment” percentage of overall FDI should increase in coming years, as long as a good proportion of the companies that have announced investment plans go ahead with their proposed projects.
COMCE, for one, is confident that will happen, predicting that FDI will reach $39.3 billion next year before surging to $48 billion in 2026.
Will Mexico’s trade and investment relationship with China help or hinder its economy?
We included this story in our selection of the biggest news and politics stories of 2024 (see here).
We’re including it here as well because of the current impact China is having in Mexico via trade and investment, as well as the country’s potential impact in the future.
Let’s look at trade first.
An influx of Chinese imports has had a significant impact on Mexico’s consumer market, and even changed the face of the retail landscape in Mexico City’s historic center, one of the country’s most important commercial hubs.
Chinese cars have also established a foothold in the Mexican market.
“Mexico finds itself, quite suddenly, awash in Chinese cars. Hundreds of thousands of them,” auto-sector analyst Michael Dunner wrote in November.
If demand for Chinese cars continues to grow in Mexico, Mexican consumers will buy fewer vehicles made in Mexico, which would hurt the Mexican auto sector. Chinese automakers such as BYD have plans to open plants in Mexico, and while that investment could benefit Mexico in a variety of ways, it could also generate problems in Mexico’s relationship with its North American trade partners.
Two Canadian provincial leaders have expressed concerns about Chinese investment in Mexico and even advocated a termination of the USMCA due to their belief that Mexico is too open to such investment. Donald Trump doesn’t want Chinese plants setting up plants on the United States’ doorstep either.
While a termination of the USMCA would appear unlikely — the three-way pact will be “reviewed” in 2026 — any deterioration in Mexico’s trade relationship with the U.S. and Canada as a result of its openness to Chinese investment would have a detrimental impact on the Mexican economy.
“From Mexico’s perspective, there are some important questions to consider.
Is Chinese investment a blessing, a curse or both?
Should Mexico continue welcoming all Chinese companies, including automakers, in pursuit of investment-related benefits such as job creation and higher economic growth?
Or should it be very selective in the Chinese investment it accepts in order to avoid upsetting its North American trade partners?”
The federal government has made it clear that its priority is strengthening trade and investment relationships with its North American neighbors, but it hasn’t shut the door completely on China.
However, with regard to trade with China, Mexico is now making a concerted effort to reduce reliance on Chinese goods. For the import substitution plan to succeed production in Mexico will have to increase, which would benefit the Mexican economy. Additional tariffs on imports will also likely be needed to make Mexican-made goods more competitive.
Just last week, the federal government announced new tariffs on textile goods including clothes to protect the Mexican textile industry. Cheap Chinese clothes will inevitably become more expensive, potentially upsetting Mexican consumers.
Despite that, look out for more tariffs on Chinese products in 2025.
Trump’s proposed tariffs could trigger recession in Mexico
We also included this story in our selection of the biggest news and politics stories of 2024 (see here).
We’re including it here as well given the major impact U.S. tariffs would have on the Mexican economy if they were to be imposed on Mexican exports.
Gabriela Siller, director of econonomic analysis at Banco Base, said in late November that the Mexican economy would go into recession if Trump keeps his word and imposes a 25% tariff on Mexican exports to the United States.
Similarly, the Associated Press reported that “the tariffs would probably plunge Mexico into an immediate recession.”
Some 150,000 export sector jobs would immediately be lost, according to manufacturing association INDEX.
Siller also said that if the incoming U.S. president’s tariff threat “materializes,” foreign companies will “gradually” leave Mexico.
Tariffs on Mexican exports to the United States would, of course, significantly diminish Mexico’s attractiveness as a nearshoring destination and make a “nearshoring boom” less likely in coming years. Mexico’s export sector — an engine of the Mexican economy — would inevitably suffer.
Earlier this month, Bloomberg reported that Japanese auto manufacturer Mazda was reconsidering its investment strategy in Mexico over uncertainty related to tariff threats made by Trump. In that respect, Mazda is certainly not alone.
Interest rates fall from record high level
The Bank of Mexico’s benchmark interest rate was a record high 11.25% at the start of the year, having reached that level in March 2023 at the end of a 21-month tightening cycle aimed at combating high inflation.
Now, after five interest rate cuts this year, the central bank’s key rate is 125 basis points lower at an even 10%. And Bank of Mexico Deputy Governor Jonathan Heath recently told reporters that the central bank could vote continue its easing cycle at its February 6 meeting and cut interest rates up to 50 basis points.
At 4.55% in November, Mexico’s annual headline inflation is still above the Bank of Mexico’s 3% target, but the central bank has focused more on the decline in core inflation, which it has said “better reflects inflation’s trend.”
The annual core inflation rate declined for a 22nd consecutive month in November to reach 3.58%.
More interest rate cuts are expected in 2025 — and they would be very welcome in what is forecast to be a low-growth environment in Mexico.
The Mexican economy slows
As is the case with FDI, economic growth data for 2024 won’t be published until early 2025, but there is no doubt that the Mexican economy slowed this year.
GDP increased just 1.5% annually in the first nine months of the year compared to the same period last year, according to national statistics agency INEGI. That level of growth represents a significant slowdown compared to the 3.2% expansion of 2023.
The consensus forecast of analysts recently consulted by the Bank of Mexico is that the Mexican economy will record a growth rate of 1.6% in 2024, and just 1.12% next year.
Such low levels of growth are clearly not indicative of an economy that is booming as a result of high levels of foreign investment. The new federal government will certainly hope that growth will increase as it pursues a range of economic initiatives including a plan to develop 10 new industrial corridors spanning all 32 federal entities of Mexico.
One positive despite this year’s economic slowdown is that Mexico’s job market has remained strong. The unemployment rate was 2.5% in October, just above the record low of 2.3% in March.
United States and Mexico forge semiconductor partnership
The announcement that the United States would partner with Mexico in a new semiconductor initiative whose ultimate aim is to strengthen and grow the Mexican semiconductor industry was big news this year.
The expectation is that the partnership — provided it continues during Trump’s second term — will bear fruit in the coming years.
“What I see in five years is a very well-integrated [semiconductors] supply chain [in North America],” Pedro Casas Alatriste, executive vice president and CEO of the American Chamber of Commerce of Mexico, told Mexico News Daily in July.
The U.S. also announced a regional semiconductor initiative in July that U.S. Secretary of State Antony Blinken said would “turbocharge” capacity in the Americas to assemble, test and package the critical electronic components. And in October the United States Embassy in Mexico and the National Chamber for the Electronic, Telecommunications and Information Technology Industry presented a joint Master Plan for the Development of the Semiconductor Industry in Mexico for 2024 to 2030.
As things stand, it appears that the semiconductor industry could play a significant role in the Mexican economy in coming years. Indeed, the growth of Mexico’s semiconductor sector could become one of Mexico’s biggest economic success stories in the years ahead.
By Mexico News Daily chief staff writer Peter Davies (peter.davies@mexiconewsdaily.com)
