Investments in Mexico: Challenges and Future Outlook
14:34 27/09/2024 - PesoMXN.com
Mexico will continue to be a magnet for investments despite the recent reform of the judiciary; however, the exploitation of nearshoring will be limited by a "weak rule of law," as noted this Friday by UBS, a prominent investment bank. According to their forecast, GDP growth for 2024 is projected to be 1.3%, while for 2025 it would be 1%. The analysis emphasizes that with the approval of the judicial reform and the uncertainty that exists until secondary laws are defined, investor confidence will be impacted, although calculating its economic effect at this moment is complicated.
UBS mentioned that “issues related to the rule of law have long been a constraint for businesses in Mexico.” For the bank, small businesses will be the most vulnerable to judicial reforms, as multinational corporations might opt for international arbitration to resolve disputes. “Smaller domestic companies will face greater uncertainty when seeking legal protection and receiving rulings, as the local system could become more susceptible to conflicts of interest and political influence,” they added. With the change of administration, a decrease in economic activity is anticipated, which is common during the first year of a new government. “New officials will be focused on formulating economic policies and regulations, causing a pause in activities,” the report noted. During this adjustment period of the new administration, further delays in the issuance of licenses are expected. “We are seeing a decline in business confidence and a need for fiscal consolidation as the U.S. economy cools, which could affect exports and remittances,” the report concluded.
The lack of a solid rule of law in Mexico raises serious concerns for investors, especially for small businesses facing additional risks. In times of uncertainty, it is crucial for public policies to foster a favorable and secure environment that guarantees investor confidence. Furthermore, an appropriate fiscal consolidation strategy could be key to navigating this complex economic landscape and stimulating domestic investment.
