Mexico’s Economic Challenges Under New President Claudia Sheinbaum

With Claudia Sheinbaum elected Mexico’s first female president, the nation faces several economic challenges crucial for maintaining growth and its prime position in nearshoring.

Following the presidential elections in Mexico, where Claudia Sheinbaum was elected as the new president, the country—the second-largest economy in Latin America—faces numerous challenges. These are pivotal for maintaining a positive growth trajectory and preserving its status as a primary destination for business relocation, known as nearshoring. Here are the six main economic challenges awaiting Sheinbaum’s administration, marking a new era with Mexico’s first woman president at the helm.

Energy and Infrastructure

Experts unanimously agree that Mexico must make significant advancements in energy supply, especially renewable energy, and modernize basic transportation and water infrastructure to become the global leader in business relocation.

In May, Carlos Torres, president of the financial group BBVA, Mexico’s leading bank, emphasized that if Mexico can resolve energy, transportation infrastructure, and water supply bottlenecks and adopt the correct energy policies, foreign direct investment will increase significantly.

Sheinbaum has promised to create 100 new industrial parks nationwide to capitalize on the proximity to the United States, the world’s largest economy. This promise highlights the need for a comprehensive energy and infrastructure development approach to support Mexico’s ambitious economic goals.

Violence and Insecurity

While Mexico’s wave of violence is not widespread, it is concentrated in specific geographic areas, raising concerns among businesses and investors about increasing productive capacity. Organized crime has adapted to modern times, infiltrating lucrative industries such as agricultural exports in Michoacán and mining in Sonora, complicating the situation further.

This persistent violence poses a considerable challenge to Sheinbaum’s administration, necessitating a multifaceted approach to improve security and foster a more stable business environment.

U.S. Elections

As Mexico’s top trading partner, the United States’ commercial policies are critical to Mexico’s economic landscape. The upcoming U.S. presidential elections, with incumbent Democrat Joe Biden facing Republican former President Donald Trump, add an element of uncertainty. Trump’s previous administration threatened tariffs on Mexican imports, advocating for increased protectionism to revitalize American industry.

Potential renewed trade frictions between the two nations could impact Mexico’s economic strategies, making it crucial for Sheinbaum to navigate these international dynamics carefully.

Pemex Debt

The state oil giant, Petróleos Mexicanos (Pemex), faces severe financial difficulties despite continued government support through tax exemptions and liquidity injections from the Treasury. With significant debt maturities due in 2025, the situation remains precarious.

Rogelio Ramírez de la O, the current Finance Minister Sheinbaum has invited to remain in his position, has acknowledged that fiscal support for Pemex will continue for years due to its substantial debt. Sheinbaum plans to renegotiate Pemex’s debt with a medium-term strategy and refocus the company’s efforts toward renewable energy markets.

Accelerating Growth

Mexico’s economy has grown at around 3% annually in recent years. However, forecasts from the Treasury and the Bank of Mexico predict a slowdown to approximately 2% in the coming years. Persistent inflation, which increased to 4.7% in May, hampers the path to lower interest rates, currently at 11%, discouraging consumption and investment.

Addressing inflation and fostering an environment conducive to growth will be a significant focus for Sheinbaum’s administration to sustain and accelerate economic progress.

The Strong Mexican Peso

The Mexican peso’s strength over the past year has been touted by outgoing President Andrés Manuel López Obrador as evidence of the currency’s stability and attractiveness, trading below 17 pesos per dollar, a near-decade low.

However, following Sheinbaum’s electoral victory and the confirmation of her substantial congressional majority, the peso fell by over 4% on Monday, reflecting market nervousness about the new government’s economic direction. Gabriela Siller, director of Economic and Financial Analysis at Base Bank, noted that nearly 80% of peso transactions are speculative, meaning changes in Mexico’s risk balance affect the exchange rate, making it less attractive as an investment.

Latin American Context and Historical Insights

Mexico’s economic challenges under Sheinbaum’s presidency must be viewed within the broader Latin American context. The region has a history of political and economic fluctuations, with countries frequently navigating complex relationships with global powers, especially the United States.

Latin America has seen many successes and struggles in achieving economic stability and growth. Countries like Brazil and Argentina have experienced similar challenges with inflation, debt, and infrastructure, which have impacted their economic trajectories. Learning from these experiences, Mexico’s approach under Sheinbaum could involve leveraging regional cooperation and shared strategies for financial resilience.

Historically, Mexico has been a pivotal player in Latin America’s economic landscape, often setting trends and benchmarks for other nations. Implementing the North American Free Trade Agreement (NAFTA) and its successor, the United States-Mexico-Canada Agreement (USMCA), positioned Mexico as a critical manufacturing and trade hub, influencing regional economic policies.

Navigating these economic challenges requires a multifaceted approach, combining domestic reforms with strategic international engagements. Sheinbaum’s administration must focus on enhancing infrastructure, ensuring energy sustainability, and maintaining robust security measures to attract and retain foreign investment.

Addressing Pemex’s financial woes with a forward-looking strategy incorporating renewable energy could position Mexico as a leader in the global energy transition. Moreover, a stable macroeconomic environment with controlled inflation and competitive interest rates will be crucial for sustained economic growth.

The upcoming U.S. elections present an additional layer of complexity, necessitating diplomatic agility to safeguard Mexico’s trade interests. Strengthening bilateral relations while preparing for potential shifts in U.S. trade policy will be vital.

Mexico’s journey under Claudia Sheinbaum’s presidency will be closely watched domestically and internationally. As the first woman to lead the nation, Sheinbaum’s administration symbolizes a significant milestone in Mexico’s political landscape. Addressing the outlined economic challenges will define her presidency and shape Mexico’s future trajectory.

Also read: Chihuahua Positions Itself as a Premier Nearshoring Destination in Northern Mexico

Sheinbaum can foster an era of economic resilience and growth by leveraging Mexico’s strategic position for nearshoring, enhancing infrastructure, securing energy supply, and navigating international trade dynamics. Upholding the peso’s stability and addressing systemic issues like violence and Pemex’s debt will be critical.

In the broader Latin American context, Mexico’s success can serve as a model for regional economic strategies, reinforcing the importance of cooperative and innovative approaches in navigating global economic uncertainties.