Timing
How's investment appetite looking for Mexican executives?
Is this a good time to invest?
Each month, over 3,500 businesses in Mexico are asked this question by INEGI officials to determine the overall business sentiment and investment appetite in the country.
Just six months ago, investment appetite amongst manufacturing executives reached 10-year level highs; highlighting the positive expectations for growth within the Mexican economy.
However, in the span of just three months investment appetite within the industry has taken a downward trend — contracting by more than 7% since the country’s election results in June of this year.
Although we won’t delve into the political implications of Sheinbaum's recent election, in today’s article we’ll present the shift in business confidence expectations in recent months, particularly from an investment appetite perspective.
Since the election’s results in early June of this year, 12 of the 15 industries tracked by INEGI have reported contractions of over 5% in their investment appetite indices — with 7 of them reporting double-digit drops.
On the other end, the only 2 industries with improvement in their investment perceptions were: textile and electronic products manufacturing.
This downturn in the business climate marks a significant halt to what seemed to be an overall positive period for corporate confidence in the Mexican economy. For example, three of the four major industries tracked by the survey—manufacturing, construction, and services—showed considerable improvements in their investment appetites since AMLO was elected president in June 2018.
Only the retail and wholesale trade sectors ended the former’s president tenure at a lower level than when he was elected.
The previous chart shows that non-financial services and construction executives were ~50% more eager to invest in their businesses than when the election took place in June 2018; plus, it also showcases the “hype” within the Mexican economy during 2022 and 2023 — years when the nearhsoring term began to attract serious attention from both local and foreign investors.
Borrowing a chart from one of our recent articles; the transportation industry (which falls within the non-financial services category) reached record level highs during 2023 and the start of 2024 — and is still within “optimistic” territory for the first time in 7 years.
So, is this recent downtrend a sign for worry?
In our view, not necessarily.
We believe that the data points more towards a wait and see attitude from Mexican executives. According to INEGI’s survey, future expectations for the country’s economic landscape haven’t taken such a heavy hit; with just 1 out of 15 industries showing significant contractions (+5%) on their perception of future economic growth for the country.
This shows how business owners could simply be cooling off on their bullish investment attitude as they gain a better understanding of the country’s direction under the new administration.
It's also important to note that, despite recent contractions in investment appetite over the past three months, business owners across major industries remain more inclined to make investment decisions than they were when AMLO won the 2018 presidential election. This suggests that there is a reasonable chance for a swift recovery in optimism if Sheinbaum's decisions and the outcome of the US elections align favorably for the Mexican business community.