Disappointing economic growth

According to revised INEGI data, Mexico's GDP grew by 1.5 percent in 2024. This dynamism is disappointing not only because it is lower than the already low average annual growth of the last quarter century (1.8 percent), but especially because it barely compensates for the weak recent performance of the Mexican economy.

After stagnating during 2019-2022, economic activity grew in the following two years. However, in 2024, it was only 5 percent higher than in 2018, which implied a contraction in per capita income during that six-year period.

Furthermore, during 2024, GDP growth was 1.8 percentage points lower than in 2023, as was, to varying degrees, that of each of the three sectors of activity.

The main “contribution” to the slowdown in GDP growth in 2024 came from secondary activities and, within these, construction.

During 2023, construction showed considerable dynamism, primarily as a result of the construction of public works, related to the pet projects of the previous administration. Private construction registered a smaller increase, probably as a result, in part, of enthusiasm about nearshoring expectations.

In contrast, in 2024, the level of public sector construction plummeted and that of the private sector remained relatively stable. Thus, annual construction growth was positive, but lower, by almost 13 percentage points, than in 2023.

Manufacturing industries reduced their annual expansion by one percentage point, to 0.3 percent in 2024. The slowdown in manufacturing dynamism seems to largely reflect the correlation of these activities with their counterparts in the United States.

The rest of the economic slowdown in GDP in 2024 came almost entirely from tertiary activities, especially trade. The slowdown in this sector could be influenced by lower industrial dynamism, and be consistent with the slowdown in private consumption and investment.

The description of recent economic performance suggests at least three considerations. The first is the limited impact of fiscal policy. The peak of public investment in construction during 2023 represented a transitory “shock” to economic activity, with no clear positive consequences in 2024. Additionally, the extraordinary increase in the public deficit during this last year does not seem to have greatly benefited the economy, whose dynamism was reduced. These notes could be confirming the unproductive nature of government spending and the unsustainability of the increase in public debt.

The second consideration is the limited impact of nearshoring on GDP. While expectations of relocation of production processes from China to Mexico may have provided some impetus, it has hardly been extraordinary. For example, during the recent two-year period characterized by growth, private construction remained below pre-pandemic levels, and manufacturing production did not show any significant rebound.

Much of the data commonly argued as evidence of nearshoring has been anecdotal and has been based largely on commentators repeating the opportunity that this phenomenon represents. Unfortunately, it cannot be ruled out that nearshoring has been a passing fad.

The third reflection revolves around the deepening of the economic model initiated by the previous administration, which has neglected the basic functions of the State, such as public security and the objective administration of justice, in favor of increasing monetary transfers to different interest groups.

The constitutional reforms approved in 2024, which sought to eliminate the Judiciary as a counterweight to the other branches of government and extinguished seven autonomous bodies, have weakened, among other things, the rule of law, accountability and the promotion of competition. These changes could help explain the economic slowdown in 2024, but, above all, they substantially limit the possibilities of long-term growth of the economy.

This last observation highlights that the main problems of the country's economic development will remain internal. President Trump's tariff threats may increase uncertainty, but they should not distract attention from the significance of the Mexican administration's misguided policies.