Mexico’s GDP up 3.1% in 2023, nearshoring fuels growth

SAO PAULO (ICIS)–Mexico’s GDP grew 3.1% in 2023, year on year, confirming a resounding year for manufacturing on the back of nearshoring and services, which has fully recovered from the pandemic, the country’s statistical office Inegi said on Tuesday.

In Q4, GDP rose by 2.4%, compared with Q4 2022.

The petrochemicals-intensive secondary activities outperformed overall GDP’s growth, with output up 3.6% in 2023, year on year, as nearshoring proved to be at full steam with consistent announcements of foreign direct investments (FID) into Mexico.

Quarterly growth in Q4 stood at 3.1% when compared with Q4 2022.

As the country with the lowest unit costs of production within the North American free trade deal USMCA, Mexico is undergoing a manufacturing revival as Canadian but mostly US companies have said they will build production facilities in Mexico.

The healthy manufacturing activity was also shown in Mexico’s manufacturing PMI index, which stayed in expansion territory for 11 out of 12 months.

As the nearshoring trend has just started, some analysts in Mexico expect 2024 GDP growth is set to surprise on the upside again as manufacturing keeps expanding.

Enrique Quintana, director of Mexico’s financial daily El Financiero, said the country’s GDP growth could end up surprising upwards again in 2024, with nearshoring the element that props up foreign direct investment and creates decently-paid jobs in the formal economy.

“Everything indicates that the momentum created by nearshoring in gross fixed investment, which has already achieved historical records, is set to continue,” said Quintana.

What Inegi puts under the umbrella of tertiary activities posted growth of 2.9% in 2023, year on year – the tertiary sector includes most of the services sectors such as commerce, administration, transport, education, and health.

Within tertiary activities, Mexico’s key tourism industry enjoyed a full recovery in 2023 after the country finally left behind the pandemic-induced downturn, with coastal resorts filling up again with foreign tourists, always a handy and home-produced source of foreign reserves.

As a side note, foreign reserves continued to be fueled by remittances from the large Mexican diaspora, which grew healthily in 2023 again. Many Mexican households still depend on remittances, mostly sent in dollars from the US, to make ends meet.

Fourth-quarter output in the tertiary sector, when compared with Q4 2022, rose by 2.2%.

Primary activities – which include the fertilizers-intensive agricultural sector as well as livestock, fishing, and minerals extraction – posted growth of 2.2% year on year.

Primary activities growth in Q4 was, however, the only which stayed practically flat compared to Q4 2022 – output only rose 0.1%.

TWO LATAM MANUFACTURING WORLDS APART
The contrast with Mexico’s industry and Brazil’s could not be more stark: Brazil manufacturing PMI stayed 11 out of 12 months in contraction territory.

Brazil’s GDP is also expected to have risen 3% in 2023, but it was mostly fuelled by agriculture and its exports, and services – manufacturing’s woes remained through the year, and were very well represented by the chemicals industry, where domestic producers suffered greatly from overseas cheaper imports.