Moody’s warned this Monday that recent changes in the Judiciary and its regulation in Mexico are putting business confidence at risk, which could seriously affect foreign investment and the nearshoring process.
A report from the agency warned that the judicial reform, which establishes the election of judges by popular vote, together with the plans of the new Government of Claudia Sheinbaum to eliminate autonomous organizations, creates an environment of uncertainty that discourages investment and endangers the Treaty between Mexico, the United States and Canada (TMEC).
“An abrupt change in Mexico’s judiciary and regulation puts business confidence at risk, including foreign investment in the country, creating additional bottlenecks that hinder nearshoring,” the report noted. ‘Companies cautious about investor sentiment in 2024-25 following deep regulatory reform.’
‘Nearshoring’, a phenomenon that has allowed Mexico to attract investments from companies seeking to manufacture closer to the United States, faces serious difficulties due to the lack of legal certainty generated by the reforms, he added.
According to Moody’s, the entry into force of the USMCA in 2020 boosted this process, but current instability threatens to reverse these benefits.
The agency does not rule out that legal uncertainty could lead to changes in the USMCA if the commercial relationship with the United States and Canada is affected by a less attractive business environment for investment.
Read: Formal employment in Mexico has its weakest September since 2009
Moody’s forecast a “difficult” environment for Mexican companies in 2024-2025.
Regulatory uncertainty will lead companies to be more cautious with their investments, hoarding cash rather than starting new projects.
This business caution will affect economic growth, which the agency estimates will be only 1.5% in 2024 and 1.3% in 2025, figures well below the 3.2% recorded in 2023.
The report also forecast a slowdown in domestic consumption, which will impact large consumer companies such as Grupo Bimbo, Sigma Alimentos and Arca Continental, which will face higher costs due to salary increases and adjustments in their profit margins.
Moody’s also noted that the new Sheinbaum Government will maintain its support for state-owned companies such as Pemex and the CFE.
However, high debt maturities and restrictions on capital investment will continue to affect the financial indicators of these companies until 2030.
Read: They invest 1,200 million dollars in the modernization of port terminals in Mexico
Moody’s indicated that Mexico’s economic success will depend on the Government’s ability to guarantee regulatory stability and judicial independence, key elements to maintain the confidence of foreign investors and take advantage of nearshoring opportunities.
With information from EFE
Get inspired, discover and share. Follow us and find what you are looking for on our Instagram!
