Global Manufacturing Weakness Pressures Mexico; Nearshoring and Exchange Rate Cushion the Blow
Manufacturing activity cooled once again in major economies in November, with contractions in the United States, the Eurozone, China, and Japan amid weak domestic demand and heightened trade uncertainty. While some pockets of resilience were seen in the United Kingdom and parts of Southeast Asia, the predominant trend was declining output, falling orders, and employment adjustments. For Mexico—whose industry is closely linked to the U.S. through the USMCA—this global environment poses risks to exports and investment in the short term.
The slowdown in U.S. manufacturing—the main destination for Mexican intermediate and finished goods—tends to transmit to local value chains, especially in the automotive, electrical-electronic, and machinery segments. Historically, when U.S. Purchasing Managers’ Index (PMI) readings fall into contraction territory, Mexican manufacturing output tends to moderate, with a lag of a few weeks to a few months. In the current cycle, nearshoring has contained part of the impact by sustaining long-term orders, but it does not fully shield Mexico’s productive sector from an external downturn.
In Europe, the deterioration of Germany’s sector—a key market for industrial machinery and equipment—and weak demand across the Eurozone add a downward bias to demand for Mexican goods from that bloc. In Asia, contractions in China and Japan continue to cast a shadow over global manufacturing, although South Korea stood out due to an export rebound in semiconductors. For Mexico, supply chain realignment driven by geopolitical and tariff tensions continues to create opportunities, but also requires higher regional content and strict rules of origin under the USMCA.
Domestically, high-frequency manufacturing indicators have hovered around the 50-point threshold in 2024, reflecting a mixed environment: resilience in automotive and electrical equipment exports versus weakness in goods more sensitive to the U.S. cycle. The “super peso” has made imported inputs cheaper and helped contain costs, but has also squeezed exporters’ margins and eroded some price competitiveness, especially for small and medium-sized firms with less pricing power.
On the labor front, manufacturing employment has remained relatively strong in northern states, although wage pressures have risen due to higher minimum wages and greater demand for specialized technicians driven by nearshoring. These costs, along with industrial electricity rates, logistics, and insurance, are forcing companies to reconsider their pricing and sourcing structures. Capacity utilization in industrial parks is high, underlining the urgent need to expand electricity, water, and transportation infrastructure.
Nearshoring potential remains one of Mexico’s most important buffers. Investment announcements in the automotive, electronics, medical devices, and distribution center sectors are supporting demand for industrial space and services. However, to realize its full effect, bottlenecks in permitting need to be addressed, energy supply reliability has to be improved, and strategic logistics projects must be accelerated. Regulatory certainty and compliance with labor and environmental provisions in the USMCA will be critical ahead of the agreement’s review in 2026.
On the monetary policy front, a cautious Bank of Mexico—facing inflation still above target—has kept borrowing costs high, which moderates short-term investment, especially among manufacturing SMEs. If the Federal Reserve enters a rate-cutting cycle later on, this could improve financial conditions and relieve some pressure on the peso during volatility episodes; however, a deeper slowdown in U.S. demand would pose an additional drag on Mexican production.
Looking ahead to 2025, the risk balance for Mexico’s industry depends on three main factors: the pulse of U.S. manufacturing, the pace of execution for nearshoring-linked infrastructure projects, and internal macro-financial stability. A stable exchange rate, fiscal discipline, and improvements in logistics and energy could help Mexico capture more regional content and cushion external weakness. The key will be to sustain investment and productivity in a global environment that remains fragile.
In summary, global manufacturing deceleration is constraining Mexico’s industrial performance, but supply chain realignment and nearshoring-driven investment provide a partial cushion. The coming months will be marked by trends in U.S. demand, the interest rate path, and Mexico’s ability to resolve bottlenecks that limit productive expansion.
