Mexico, a surprisingly sunny outlook

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If you ask an upper class Mexican how the country is doing, the sky is falling. But is it? We would argue that while the last five years have brought negative public policy developments that have weakened institutions, deepened social divisions and increased the power of the military, the economic country’s future is still quite bright, particularly in the context of global geopolitics.

Mexico was blessed by geography. Period.

  • Being the southern neighbor of the US (and Canada) can be a political hassle, but is an economic godsend. Given the dearth of preferable alternatives in Latin America, Mexico will continue to receive significant amounts of Foreign Direct Investment (FDI), fueled by the complex situation globally in which companies are searching for a good place to establish their operations that is close to the largest economy in the world, the US (aka, nearshoring).
    • FDI totaled $32 billion USD through September 2023, and the annual forecast is expected to exceed $40 billion dollars.
  • Mexico did not actively participate in WWI or WWII and will not be intimately involved in the possible advent of a wider conflict. The possibility that the Gaza/Israel conflict could spread throughout the Middle East is real, and Russia is involved in both this conflict (via Iran) and more obviously in the ongoing invasion of Ukraine.
    • The Mexican elite tend to complain that the US is not paying sufficient attention to the risks to its democracy under the current MORENA regime, but given the US role in the world, its southern neighbor is the least of its worries from a national security perspective.
      • Note that the Republicans in Congress that threaten to invade Mexico to “solve” the fentanyl crisis are speaking to a domestic audience, but they are not in charge of foreign policy… for now. Yes, a Trump presidency is a huge risk.

The economic opening initiated 25 years ago has borne fruit, even if GDP growth is still less than optimal. Mexico’s economy is diversified and complex and intimately integrated into the North American economy, which represents 30% of global GDP. The US Census Bureau revealed that from January to November of last year, Mexico was the largest exporter of
goods to the US ($738 billion dollars), well ahead of both China and Canada.

All three economies grew nicely in 2023: 3.4%, 2.4% and 1.1%, in Mexico, the US and Canada, respectively. In 2024 both China and the European economies are expected to continue to underperform. According to forecasts China’s growth will slow to 4.5%1 (after growth rates on average of 7% from 2010-2021) and estimates place European Union growth at around 1.2%2 this year.

One issue that merits watching is the growth of public debt as a result of increases in spending related to the president’s priority projects (Interoceanic Corridor, Tren Maya, the Dos Bocas refinery and cash transfers related to social programs).

Conclusion: Mexico’s economy will go the way of the US economy – trending positively. Responsible macroeconomic management has been maintained regardless of the political party in charge, which is a very good sign. The economic outlook could be better with a proactive nearshoring strategy, but it could certainly also be much worse.

Mexico’s democracy is imperfect and fragile. Join the club.

There are serious concerns about the fragility of Mexico’s democratic institutions, particularly with respect to the existence of autonomous state institutions and the independence of the judiciary. Mexico only recently transitioned from a one-party, authoritarian government to a multi-party system in which the Congress plays more than a symbolic role in public life.

Public security and political violence is also worrisome given the power of organized crime. The National Guard, de facto the military, is already responsible for maintaining public order, an important risk down the line. Andres Manuel López Obrador’s populist presidency has definitely rocked the status quo boat. He has shown little regard for previous advances made in areas like healthcare, putting in place ineffectual policies to replace them. Further, this government has made some foreign investors nervous by showing a lack of regard for the rules already in place.

There are legitimate reasons to be displeased. MORENA seems to be imitating the ways of the old-style PRI, using the tools of the state for its own political purposes. This is not surprising given that AMLO spent most of his early life as a PRI member and many old party stalwarts have themselves run into the arms of MORENA to enjoy majority status.

That said, there is a vocal opposition that will be represented in the presidential election by Xóchitl Gálvez (Frente Amplio por México, PAN, PRI, PRD), a politician who also knows how to connect with the people and understands the challenges of the underdog. There will be a 3rd candidate, Jorge Álvarez Maynez, a relatively new face from Movimiento Ciudadano (MC), whose campaign aims to champion progressive causes left aside by the traditional parties and connect to younger voters; he may take a small percentage from the Xóchitl camp.

The press is still very much free to criticize the president and his government, though being a journalist in Mexico is extremely dangerous; over the past 2 decades more than 160 journalists have been killed, 30 have disappeared and there is a 95% impunity rate in these cases3. Admittedly, organized crime is largely to blame and the lack of security for journalists is a situation the government should pay more attention to.

Claudia Sheinbaum has been AMLO’s most faithful follower and at times supported him to a fault, particularly on issues related to energy and the environment, considerations that as a scientist she knows well. She has experience and understands the complexities of global realities to a greater degree than her current boss and today most polls give her a 20%+ edge over her rivals.

As for the Congress, it is uncertain if MORENA and its allies will pull off the same landslide that we saw when AMLO won in 2018. In fact, this objective has been identified as a strategic goal by both sides. AMLO is calling on voters to grant his coalition a legislative supermajority to approve further Constitutional changes, while the opposition leaders aim to block this outcome.

Whoever the next president is will not be able to ignore the opposition to the same degree that AMLO has and will have to negotiate, a good thing for democracy.

Conclusion: Regardless of who wins the presidency, Mexico will be under more pragmatic management than it is now within less than a year. And the country will have a female president! That is certainly an interesting development for a country that suffers from 11 femicides a day.

1 World Bank
2 World Economic Situation and Prospects, United Nations
3 Columbia Journalism Review

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