Mexican industry loses steam: 41-month growth streak comes to an end

Mexican industry is losing strength and is yielding to cost pressures, political uncertainty, weak business confidence and subdued external demand.

In August, Mexican industry interrupted a streak of 41 consecutive months of growth by registering an annual decline of 0.3%.

This deceleration, which had already been emerging in previous months with growth rates lower than 11Q03Q, confirms the loss of dynamism in the sector.

According to INEGI, the monthly contraction was 0.5%, suggesting that the industrial market could face a prolonged period of weakness.

Factors contributing to this setback include higher operating costs, high interest rates and political uncertainty, which have dampened business confidence and weakened both domestic and external demand.

The drop in manufacturing exports in August is a reflection of this less favorable environment and could anticipate a moderate performance for the end of the year.

Mining and construction were the hardest hit components, while other segments such as power generation and manufacturing made marginal gains.

Construction, considered a pillar for economic activity, experienced a 4.1% annual decline, its first decline since October 2022.This decline was particularly noticeable in civil engineering works, with a 23.4% drop, reflecting the volatility in public investment towards the end of the six-year term.

Mining, on the other hand, accumulated ten consecutive months with negative results, with an annual decline of 1.3%, underscoring the vulnerability of a sector subject to both international mineral prices and domestic regulatory challenges.

Despite the adverse environment, power generation, transmission and distribution, as well as the manufacturing industry, showed signs of growth.

The energy segment advanced by 2.0% YoY, while manufacturing managed to reverse its July decline with growth of 0.7% in August. These results, although moderate, represent support for the industry in a context of uncertainty and confirm that sectors such as the automotive sector continue to contribute dynamism to the market.

The Mexican market also faces significant opportunities, such as the possibility of attracting greater public and private investment by 2025. Construction could benefit from increased public investment under the new administration, which, in turn, could generate a multiplier effect on private investment.

The conditions for promoting industrial spaces and capitalizing on the nearshoring are presented as a strategic window, especially in a context of reconfiguration of global supply chains.

High interest rates continue to limit access to financing, affecting both public and private projects. The completion of the government's flagship projects may leave a significant gap in public investment, generating uncertainty in sectors that depend on these types of initiatives.

Business confidence remains a critical point, affected by the perception of internal and external risks, including the approaching U.S. elections, which could alter the demand for Mexican exports and add volatility to the macroeconomic environment.

The potential cooling of the U.S. economy represents a significant risk, as it could reduce demand for manufactured goods in Mexico, a key component of bilateral trade. In addition, persistent political and financial uncertainty remains an obstacle to the consolidation of new investments.

The industry's reliance on volatile sectors, such as mining and construction, increases the market's exposure to unexpected fluctuations in both international prices and domestic economic policies.

In this context, the industry faces a challenging scenario that is not without opportunities. Entrepreneurs will have to adapt their strategies to face a changing market, seeking to diversify markets and strengthen operational efficiency. The industry's ability to overcome this period of weakness will depend to a large extent on the decisions made by both the government and private actors in the coming months.

Collaboration: Editorial Auge.