Companies in Mexico, especially in the construction and real estate businesses, are counting on an increase in their profits and the Mexican economy as a whole thanks to the “nearshoring” effect, especially expected in industrial areas along the border with the United States, Reuters reports.

The Mexican government, in turn, estimates that the “nearshoring” effect – the tendency of American companies to move their production facilities to Mexico, closer to the domestic market, at the expense of China and other Asian countries – will contribute 1.2% to GDP growth this year.

Mexico’s executive is forecasting overall gross domestic product growth of 3.5% in 2023.

Although some analysts warn that drug cartel violence, combined with energy and water problems, could be a hindrance to U.S. companies in Mexico, many local and foreign companies are trying to make the most of the nearshoring trend.

“A lot of companies are already talking about this — about nearshoring and its economic benefits,” says Gerardo Kopka, an analyst at consulting firm MetAnalysis. “And I really believe that this trend will begin to develop,” he emphasized, but warned that it may take some time before its effects are felt.

Mexico sees record investment as US companies reduce exposure to China

“Nearshoring” is one of the words that has been thrown around by many CEOs of large companies during the meetings where they announce their financial results for the third quarter of the year. In the first 6 months of 2023, Mexico attracted $29 billion in foreign direct investment, which is 5.6% more than in the previous year.

More than half of them were made in the industrial sector. And fixed investment in Mexico will reach its highest level since 1997, increasing 31.5% in August compared to the same period last year.

Instead, China just reported its first quarterly deficit in foreign direct investment, according to balance-of-payments data, pointing to Beijing’s difficulty attracting foreign firms as the West de-risks the country’s economy.

This is the first quarterly deficit since Chinese regulators began publishing data on foreign direct investment in 1998.

In addition, data from investment bank Goldman Sachs showed foreign currency outflows from China rose sharply in September to $75 billion, the highest single-month level since 2016.

China’s economic growth slowed sharply in the second quarter of 2022 after years of impressive growth, and the recovery is taking longer than analysts or officials in Beijing expected.