Mexico's investment climate peaked in late 2023, driven by massive public works and rising enthusiasm around nearshoring opportunities. However, just months later, the country finds itself at a low point, with capital investment—both public and private—shrinking fast.

Public Investment Cuts and Fiscal Deficits Shake Investor Confidence

Public investment has dropped by 29% in the first five months of 2025—the most severe decline since 1995. With the government focused on closing a federal deficit of 5.7% of GDP, capital spending has taken the hardest hit. This fiscal adjustment is part of President Claudia Sheinbaum’s effort to stabilize public finances and avoid a sovereign credit downgrade.

While austerity may calm the markets, the sudden contraction in government infrastructure investment weakens job creation and GDP growth. Formal employment in the first half of 2025 is just one-fourth of 2023’s levels—the lowest in two decades outside the pandemic.

Political Uncertainty Dampens Foreign Direct Investment (FDI)

Although foreign direct investment in Mexico surged during the peak of nearshoring hype, current trends point to hesitation. Since August 2024, gross fixed capital formation has registered negative year-over-year figures. Investors are now waiting for clarity on several fronts:

• The implications of a Morena supermajority in Congress
• Structural reforms tied to “Plan C” that affect the judiciary and regulatory institutions
• The possible impact of a second Trump presidency on US-Mexico trade relations

These risks are compounded by worsening insecurity in key industrial zones, making long-term commitments more difficult to justify.

Nearshoring Still Offers Promise—But Execution Is Key

Despite the current turbulence, nearshoring in Mexico remains a structural advantage. The country continues to benefit from:

• Geographic proximity to the U.S.
• USMCA trade benefits
• Competitive labor costs
• A growing industrial base in northern states like Nuevo León and Chihuahua

But the key question now is not whether nearshoring is viable—but whether Mexico can offer policy consistency, legal certainty, and infrastructure to support the relocation of global supply chains.

What Investors Need to See Before Committing Capital

Axel Christensen, head of investment strategy for Latin America at BlackRock, points out that capital returns when investors understand the rules of the game. Right now, the lack of clarity about institutional reforms, tax policies, and judicial independence is holding back the flow of private money into the country.

In his words:

“When we understand where changes are going, we’ll identify the investment opportunities.”

Until Mexico listens to stakeholders like BlackRock and other institutional investors, private investment reactivation will remain elusive.

Conclusion: Clarity, Stability, and Execution Will Reactivate Investment

Mexico’s investment reactivation hinges on two fronts: sound fiscal strategy and institutional certainty. Without a trustworthy legal framework and predictable governance, public investment cuts won’t be offset by private capital inflows. If the federal government fails to restore investor confidence, Mexico risks stagnating—despite the nearshoring boom waiting at its doorstep.

To bring back foreign and domestic capital, policymakers must focus on:

• Transparent rules for the judiciary and regulatory bodies
• A stable tax environment
• Targeted incentives in infrastructure and manufacturing
• Public-private dialogue with key investment funds

Only then can Mexico fully capitalize on its strategic position and return to sustainable investment-driven growth.