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Successfully investing in Mexico

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last updated on 19 May 2021 | reading time approx. 2 minutes

 

 

 

How do you assess the current economic situation in Mexico?

Mex­ico already re­por­ted shrunken GDP growth of 0.1 per cent in 2019. The main reas­ons were the lack of im­pulses from the USA as the main con­sumer coun­try, un­cer­tain­ties about the North Amer­ic­an Free Trade Agree­ment and the do­mest­ic polit­ic­al con­di­tions in Mex­ico. Al­though the un­cer­tain­ties sur­round­ing the NAF­TA suc­cessor agree­ment eased, the Corona pan­dem­ic led to a de­cline in Mex­ic­an GDP of 8.5 per cent in real terms in 2020. The IMF fore­casts real GDP growth of 4.3 per cent for Mex­ico in the cur­rent year 2021. Pos­it­ive sig­nals can cur­rently be heard again from the eco­nomy, however not due to the do­mest­ic polit­ic­al frame­work con­di­tions, but be­cause of the pos­it­ive news about the re­cov­ery of the US eco­nomy, which is grow­ing again.

 

What challenges do German companies face during their business ventures into Mexico?

In ad­di­tion to the un­pre­dict­able do­mest­ic polit­ic­al lurch­ing course of the gov­ern­ing al­li­ance un­der Pres­id­ent Andrés Manuel López Obrador, the few avail­able qual­i­fied and trained work­ers and the volat­ile cur­rency risks with a weak loc­al cur­rency as well as the dif­fi­culties re­gard­ing cor­rup­tion and crime re­main. The chal­lenges can be over­come, but are as­so­ci­ated with ad­di­tion­al costs.

 

US President Joe Biden spoke with Mexican President López Obrador about future joint cooperation. How will the US-Mexican relationship affect the economy?

Mex­ic­an re­la­tions with the USA were hanging by a thread after Don­ald Trump took of­fice, but the left-wing Mex­ic­an pres­id­ent Andrés Manuel López Obrador in­tens­i­fied con­tact with Trump and sought com­mon ground along one line, which was found. On the one hand, the “North Amer­ic­an Free Trade Agree­ment” (NAF­TA) was ex­ten­ded (pack­aged in a new dress, called US­MCA), and on the oth­er hand, there was a joint bet on the oil in­dustry. Trump had to go, Amer­ic­an na­tion­al pride was al­lowed to re­main, which the new pres­id­ent Joe Biden is now con­tinu­ing from a dif­fer­ent angle – but not ne­ces­sar­ily to the det­ri­ment of the Mex­ic­an eco­nomy. The new US pres­id­ent's en­ergy policy is com­pletely con­trary to the Mex­ic­an pres­id­ent's strategy of re­struc­tur­ing the ail­ing state oil com­pany PE­MEX with more than 24 bio. US Dol­lars. However, there are also op­por­tun­it­ies for the Mex­ic­an eco­nomy to sup­ply the change in the USA. Cur­rently, a luc­rat­ive swap deal has taken place for both sides, which helps both pres­id­ents gain do­mest­ic polit­ic­al prestige, namely the USA sup­plied Cov­id vac­cines to Mex­ico and Mex­ico sent more bor­der guards to their north­ern bor­der in or­der to stem the flow of refugees to the USA already on the Mex­ic­an side. It can be ex­pec­ted that the US-Mex­ic­an re­la­tion­ship will also strengthen again un­der Biden, be­cause both coun­tries also be­ne­fit from each oth­er eco­nom­ic­ally.

 

In your opinion, how will Mexico develop?

The pres­sure in the eco­nomy will cer­tainly in­crease, as world mar­kets will suf­fer from eco­nom­ic down­turns and thus Mex­ico will also be slowed down in the loc­al con­sumer mar­ket. This is des­pite the fact that the ad­op­tion of the new US­MCA free trade agree­ment of­fers prom­ising op­por­tun­it­ies, as the un­cer­tain­ties of a pos­sible ter­min­a­tion of NAF­TA without re­place­ment have dis­ap­peared and Mex­ico con­tin­ues to prom­ise low-cost pro­duc­tion in an un­sat­ur­ated loc­al mar­ket. The do­mest­ic polit­ic­al and se­cur­ity situ­ation still poses head­aches and re­stricts in­vestors. Nev­er­the­less, Mex­ico re­mains primar­ily de­pend­ent on the spend­ing spree of the Amer­ic­an con­sumer. The re­cov­ery of the US eco­nomy, also due to the stim­u­lus pro­gramm im­posed by Joe Biden, sent the first pos­it­ive sig­nals in this re­gard.

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Dr. Dirk Oetterich, LL.M.

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