Judicial reform could seriously affect foreign investment: Moody’s

MEXICO - Moody's warned that recent changes in Mexico's judiciary and its regulation are putting business confidence at risk, which could seriously affect foreign investment and the nearshoring process.

A report by 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 bodies, creates an environment of uncertainty that discourages investment and endangers the U.S.-Mexico-Canada Treaty (USMCA).

“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,'” he said in the report ‘Companies wary of investor sentiment in 2024-25 after deep regulatory reform.’

He added that nearshoring, a phenomenon that has allowed Mexico to attract investment from companies seeking to manufacture closer to the United States, faces serious difficulties due to the lack of legal certainty generated by the reforms.

According to Moody's, the entry into force of the USMCA in 2020 boosted this process, but the 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 trade relationship with the United States and Canada is affected by a less attractive business environment for investment.

Moody's forecasted a “difficult” environment for Mexican companies in 2024-2025.

Regulatory uncertainty will lead companies to be more cautious with their investments, hoarding cash instead of initiating 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, well below the 3.2% recorded in 2023.

The report also predicted 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 wage increases and adjustments in their profit margins.