On 26 June 2023, we published a first nearshoring recap using FY22 data (How is nearshoring going? A first recap). We concluded that progress was bittersweet, with mixed signals – from supportive (strong momentum in new investment announcements and the red-hot industrial real-estate sector), to neutral (FDI flows and export data), and negative (imminent infrastructure needs for electricity and water) – amid an environment of prevailing volatility and increasing risk aversion. In this edition, we are updating the indicators to 1H23 figures and also including a new indicator that tracks the economic activity by region.
Background: With information up to June 2023, we believe that there are encouraging signs but still no significant change of trend in our key indicators. We acknowledge that nearshoring is happening, with indicators showing strong evidence of it, with vacancies at record lows in the real-estate universe, unstoppable investment announcements and accelerated economic activity in key nearshoring regions. However, we have also seen challenges and structural drags have increased, with the reliability of the electricity infrastructure remaining under pressure as the peak-consumption season becomes longer, and key infrastructure projects for the current administration are not necessarily nearshoring-related.
The sweet: Nearshoring-preferred markets in northern Mexico are still almost sold-out and the increase in rents continues to accelerate. The labour force remains solid. However, the growth of manufacturing and transport employment in 2022 still exists for transport but has shifted towards the construction sector in 1H23. We have also witnessed stronger-than-expected economic growth, which has led to frequent upgrades of the economic outlook. Lastly, the traction we saw in our last update of investment announcements has actually gained strength. In the last few months we have seen a record number of announcements and size of investment. In fact, we have seen an announcement of an investment similar in size to Tesla.
The neutral: Encouraging but still mixed signals appear in FDI dynamics, since investment announcements take time to actually materialise, while growth in exports continue to surpass the long-term average, but is gradually normalising due to the end of China’s COVID policy. Finally, growth in the banking system, while consistent, is hard to attribute solely to the nearshoring trend. Lastly, the political news flow, which was erratic in the past, has worsened and is currently more negative.
The bittersweet: The need to improve infrastructure (mainly electricity and water) has become more urgent than in the past, and while we don’t underestimate the efforts seen YtD, mainly in water matters, we are concerned about the reduced resources assigned in the FY24 federal budget.
In short, we are gradually seeing more evidence of nearshoring materialising, but also see increasing headwinds that threaten its full potential. This is particularly significant when we include the fact that presidential elections in Mexico (and the US as well) are just around the corner.
What’s new? From the beginning we have tried to make the visibility of the data and trends as accurate and accessible as possible. We have been constantly working to upgrade the quality of the information and thus, we are incorporating a new indicator that tracks the economic activity per region, we also are showcasing our forthcoming monitor on Mexican banks, which will allow us to identify the competitive advantages banks could have to capture the potential of the trend and we also complemented our real estate indicators, by adding the detailed absorption levels in addition to the vacancies and rents that we were already tracking. Lastly, at the end of the document, we added a table that will allow you to understand the main changes in regions from one update to another. We hope you find this tool useful.