Why Mexico's Calm Exterior Hides a Shiver

Welcome back to The Mexicanist, where we peel back the layers of the official narrative to reveal the vibrant, sometimes perplexing, pulse of Mexico's economy. This week, we dive into the subtle tremors beneath the surface of seemingly robust trade figures, the quiet concerns brewing in bank boardrooms, and the unique challenges facing everything from bean farmers to cattle ranchers.

A Concentrated Comeback

The North American trade pact, formerly NAFTA, now the U.S.-Mexico-Canada Agreement (T-MEC), is often hailed as a triumph of continental integration. It's a bedrock of cross-border commerce, designed to foster shared prosperity. Yet, a recent report from the venerable La Jornada presents an intriguing, perhaps uncomfortable, nuance to this narrative: some 75% of Mexico’s exports are concentrated in the hands of a mere 515 transnational companies. The vast majority of these corporate leviathans, we are told, hail from the United States, diligently leveraging Mexico’s lower production costs and, notably, its more modest wage structures.

Here’s the rub, and it’s a telling one: an academic from the National Autonomous University of Mexico (UNAM) posits that Mexican companies themselves have not been the primary beneficiaries of this arrangement. Even in the robust agri-food sector, which churns out a hefty $50 billion annually, the dominance of these foreign behemoths is palpable.

One might expect a free trade agreement to uplift all boats, or at least a significant portion of the local fleet. Instead, the T-MEC appears to have created a highly efficient, if somewhat exclusive, pipeline. It’s a testament to the power of capital to seek its most advantageous harbor, even if that means the benefits accrue disproportionately to those already at the top of the food chain. For investors, this isn’t necessarily a bad thing; stability in supply chains and predictable labor costs are certainly appealing. But for the broader Mexican economy, it poses a question of equitable distribution: is the rising tide truly lifting all, or merely creating a deeper channel for the largest vessels?

This concentration of export power in foreign hands, while efficient, also introduces a subtle vulnerability. Should global trade winds shift, or should political tides in Washington turn less favorable, a significant portion of Mexico’s export engine is controlled by entities whose primary allegiance lies elsewhere. It’s a pragmatic reality, perhaps, but one worth noting for those evaluating long-term systemic risks.

Banks Battening Down the Hatches

While the official narrative often highlights steady, albeit slower, economic growth, a glance into the vaults of Mexican banks offers a more cautious perspective. Between January and May of this year, local banks significantly ramped up their reserves for potential losses, setting aside a hefty 84.445 billion pesos. This figure represents an 11.5% real-term increase over the same period last year and marks the highest amount since the pandemic-fueled anxieties of 2020. These "preventive estimates for credit risks" are, in essence, the banks' rainy-day funds, preparing for a future where borrowers might struggle to meet their obligations.

What’s driving this newfound prudence? The economic expansion, while present, isn't as robust as last year. Simultaneously, there’s a noticeable uptick in demand for consumer loans – credit cards, personal loans, and payroll advances. It seems many Mexicans are turning to debt to bridge the gap left by diminishing incomes. The non-performing loan index (IMOR), a key metric for financial health, is quietly inching upwards, particularly within the consumer credit segment.

This creates an intriguing juxtaposition. On one hand, government figures may paint a picture of resilience; on the other, the banking sector, ever sensitive to risk, is clearly anticipating a less rosy future for the average Mexican household. It suggests that while headline economic indicators might offer a broad overview, the finer details of household financial health—the ability of ordinary people to keep their heads above water—may be telling a different story. For discerning investors, this is a subtle but significant signal. It implies that opportunities in the consumer sector might be accompanied by elevated risk, and that a deeper dive into the health of various demographic segments might be more illuminating than broad national statistics. It's the kind of quiet financial tension that often precedes louder pronouncements.

The Peso's Poker Face

The Mexican peso, that resilient, oft-debated currency, has long been a bellwether for investor sentiment toward the nation. While recent spot market movements might suggest a degree of stability—last week saw a modest 0.47% depreciation against the dollar, closing at 18.7312—a peek into the Chicago futures market reveals a more pronounced bearish sentiment. Speculative net positions there have turned sharply against the peso, reaching levels not witnessed since early May.

What’s rattling these professional gamblers of the derivatives world? A familiar specter: uncertainty surrounding former (and potentially future) U.S. President Donald Trump’s trade policies, coupled with whispers about a possible dismissal of Federal Reserve Chairman Jerome Powell. These are, of course, entirely U.S.-centric dramas, yet their ripples are felt acutely in Mexico City’s financial district. Banorte, ever the optimist, projects the peso at 19.50 for the close of 2025 and 19.20 for 2026, but the futures market suggests a hedging against more volatile outcomes.

This divergence between the spot market’s apparent calm and the futures market’s more agitated state is where the unusual angle truly emerges. It underscores a fundamental vulnerability for Mexico: its economy, and by extension its currency, remains deeply susceptible to the political winds and policy pronouncements emanating from Washington. It's a reminder that even when domestic fundamentals appear steady, external political drama can inject a potent dose of uncertainty. For those looking to position themselves in the Mexican market, understanding this dynamic – the external tether – is paramount. It suggests that geopolitical analysis, perhaps even more than traditional economic metrics, remains a crucial tool for navigating the peso's future.

The Ascent of Mexican Prices

While central bank targets often guide the narrative around inflation, the reality for Mexican consumers continues to be a persistent squeeze. In June, the National Consumer Price Index (INPC) showed an annual inflation rate of 4.32%. This is a slight dip from the 4.98% recorded a year prior, yet it remains stubbornly above the Banco de México's target of 3.0% (with a one-point tolerance band).

Digging into the specifics reveals the true pain points: "Other services" and "private education" continue to be significant drivers of price increases. This isn’t about the price of a discretionary luxury; it’s about the fundamental costs of living and improving one’s life. For families, the escalating cost of education represents a direct hit to aspirations, while rising service costs reflect the increasing expense of day-to-day necessities beyond basic goods. This suggests that even as overall inflation figures might show a downward trend, the underlying pressure on household budgets, particularly for non-discretionary spending, remains substantial. This could have long-term implications for consumer spending patterns and internal demand, painting a more nuanced picture of economic health than broad inflation numbers alone.

Food Sovereignty on Shaky Ground

Zacatecas, for those in the know, is Mexico's undisputed champion of bean production, annually harvesting an impressive average of up to 300,000 tons. Yet, despite this bounty, a local academic from the Autonomous University Chapingo, Raúl René Ruiz Garduño, throws cold water on any notion of immediate food sovereignty for the grain. His assessment is stark: Zacatecan farmers, he argues, lack the necessary technical, agro-climatic, and governmental support to double their current output. This deficiency, he contends, is precisely what’s needed to achieve true national self-sufficiency in this dietary staple.

The problem, according to Ruiz Garduño, isn't just about current challenges; it's rooted in nearly five decades of monoculture, which has led to "deep wear and tear" on the land. The implication is clear: Mexico’s ambition for food sovereignty, particularly in such a critical foodstuff, is not merely a matter of political will or even immediate financial investment, but rather a long-term agricultural and environmental challenge that has been decades in the making. This reveals an intriguing paradox: a nation capable of abundant production, yet hampered by past practices and present neglect, leaving a vital part of its food security vulnerable. For investors eyeing the agricultural sector or indeed, the broader stability of Mexico’s internal markets, this nuanced understanding of a staple crop’s plight offers a unique lens through which to assess potential opportunities and risks.

Cattle, Commerce, and Conflict

Here's a tale that weaves together livestock, international trade, and the complex geopolitics of border control. Senator Manlio Fabio Beltrones, a name with a certain gravitas in Mexican politics, has made a rather pointed demand: seal Mexico's southern border to all Central American cattle imports. His reasoning? It's a crucial step, he argues, to persuade the United States to lift its ban on Mexican cattle exports, a ban imposed due to the persistent, vexing threat of the screw-worm.

The stakes are far from trivial. Mexican cattle ranchers, we learn, have already absorbed losses exceeding $400 million USD in 2025 alone due to this closure. The pressure is so acute that a major meat processor, SuKarne, has reportedly caved to demands from organized ranchers, agreeing to reject 5,000 head of Nicaraguan cattle.

This isn’t just about cows; it’s about control, reputation, and the delicate balance of North American trade. The “screw-worm,” a seemingly minor biological threat, has become an unlikely fulcrum in a larger geopolitical leverage game. Mexico's ability to access its most lucrative export market for cattle is directly tied to its capacity to manage its southern frontier, transforming a biological issue into a policy imperative that carries a significant economic price tag. For those observing the intricacies of U.S.-Mexico trade, this episode offers a compelling, if unusual, case study in how interconnected and, at times, unexpectedly fragile the relationship remains. It’s a vivid illustration of how a localized agricultural issue can ripple outwards, impacting national trade figures and international relations.

Mexico City's Gentrification

Mexico City, a perpetual magnet for those seeking vibrant culture and a lower cost of living than their northern neighbors, is now grappling with a particularly thorny consequence of its popularity: gentrification. Recent protests have brought this issue to the fore, highlighting a rapid escalation in rental prices that is pushing out long-time residents and, in many cases, making housing simply unaffordable for the average citizen. A study paints a stark picture: between 2020 and 2025, the average rent for a Mexico City apartment jumped from 12,085 to 17,610 pesos per month. To put that in perspective, the average formal sector worker’s salary barely covers it. For the informal sector, housing is a pipe dream.

In response, Mexico City’s Head of Government, Clara Brugada, has proposed a series of interventions, including rent control, tighter regulations on short-term rentals, and a push for more social housing. While these measures aim to restore “the right to the city” to its inhabitants, the move towards rent control, in particular, carries a certain risk. As La Jornada notes, it could easily draw the ire of the middle class, creating a fresh wave of public discontent.

This isn’t just a social problem; it's an economic one, too. The city's growth as a "global metropolis" is creating a two-tiered economy, where the benefits accrue to a privileged few while the broader populace struggles. The "unusual angle" here is the delicate dance between economic development and social equity. How does a city attract foreign investment and tourism without pricing out its own? The proposed solutions, while perhaps necessary, could spark unintended economic consequences, particularly in the real estate market. It's a complex urban dilemma that reflects broader global trends, but with a distinctly Mexican flavor, highlighting the challenges of balancing growth with social justice in one of the world's largest cities.

The "Hecho en México" Seal

In a move that blends national pride with economic strategy, Mobility ADO, a prominent transportation firm, was recently bestowed with the coveted "Hecho en México" (Made in Mexico) seal. This isn’t just a badge of honor; it officially recognizes the company as a "strategic ally" of the federal government’s "Plan México," spearheaded by the Ministry of Economy.

What’s unusual about this? The exclusivity. We’re informed that only a thousand companies have received this particular emblem. This isn't merely about promoting domestic goods; it's about a highly selective endorsement, a strategic alignment between the government and a chosen few corporate players. It suggests that "Plan México" isn't a broad-brush initiative for all businesses, but rather a more targeted approach, focusing resources and official backing on entities deemed most critical to its overarching vision. For companies seeking to operate within Mexico, understanding this selective patronage and the criteria for becoming a "strategic ally" might be as important as understanding market fundamentals. It signals a shift from broad market liberalization to a more curated approach to economic development, where government favor can be a significant competitive advantage.

A Skeptic's View

An opinion piece in Excelsior offers a rather grim assessment of Mexico’s current financial trajectory, sounding an alarm that cuts through the usual political pleasantries. The author, Gabriel Reyes Orona, argues that Mexico’s apparent lack of an effective rule of law is a fundamental impediment, one that will effectively cut off support from the International Monetary Fund, the World Bank, and other crucial financial institutions.

His critique doesn’t stop there. He suggests that the current administration, under President Sheinbaum, harbors a naive belief that public debt merely needs to be "served" (refinanced indefinitely) rather than repaid. This, he contends, is a dangerous fantasy. With diminishing assets and a lack of profitable programs, the government’s options, in his view, are dwindling, leaving only the politically unpalatable choice of creating new taxes. The author further speculates that the U.S. will drive a hard bargain with Pemex and CFE regarding their access to U.S. markets, potentially pushing Mexico toward a "privatization by auction"—a euphemism for a forced liquidation of national assets to satisfy creditors. He even raises the specter of U.S. authorities accusing Mexico of accounting fraud.

This is the "unusual angle" in its purest form: a stark, unvarnished warning from within Mexico’s own commentary class, painting a picture of an impending "financial precipice" brought about not by external shocks, but by internal policy missteps and a fundamental misunderstanding of financial realities. It’s a sobering counter-narrative to any official pronouncements of economic stability, and for international investors, it offers a crucial perspective on the potential risks lurking beneath the surface of the Mexican economy. It suggests that institutional strength and adherence to financial orthodoxy are not merely bureaucratic niceties, but essential bulwarks against systemic risk.

Morena's Internal Dynamics

Finally, we turn our gaze to the swirling currents within Mexico's ruling party, Morena.

La Jornada provides a detailed account of internal conflicts, including the creation of a new commission designed to scrutinize and evaluate controversial figures seeking to join the party. This move, while ostensibly about maintaining party purity, acknowledges a deeper issue: the party's rapid expansion has brought in a diverse array of characters, some with questionable pasts, leading to "legitimate and repeated complaints from the militancy". The implication is that the very strength of the party – its broad appeal – is also a source of internal fragility.

More directly impacting the broader context of U.S.-Mexico relations, the report touches upon the scandal surrounding Adán Augusto López Hernández, a key Morena senator and former Secretary of Security in Tabasco. Despite being received with applause and chants of "You are not alone!" at a recent party meeting, López Hernández is embroiled in investigations linking his former Secretary of Public Security to organized crime. He dismisses these as "politiquería" (dirty politics), yet the allegations persist.

This political infighting, while seemingly internal, has broader implications for the investment climate. When a key political figure is mired in scandal, and when accusations of "politiquería" overshadow investigations into alleged links to organized crime, it creates an environment of uncertainty. This uncertainty, in turn, can deter foreign investment and impact the ease of doing business. Furthermore, the report indirectly touches on U.S. concerns, referencing "interventionist" pretensions and tariff threats, and specifically mentions Donald Trump's assertion that "drug cartels exercise tremendous control over Mexico and its politicians".

The unusual angle here is how internal party dynamics and localized corruption allegations can morph into a broader concern for international relations and the overall business environment. It suggests that for those operating in Mexico, political stability isn't just about electoral outcomes, but also about the coherence and perceived integrity of the ruling political class. The echoes of U.S. concerns about organized crime, even when dismissed as political maneuvering, underscore a persistent challenge that transcends mere partisan squabbles and directly impacts perceptions of governance and risk.