Welcome to another bipolar year of mixed results for Mexico so far, with low growth, limited new foreign investment, and World Cup euphoria amid political chaos. The United States is celebrating 250 years of independence amid an Iran-Israel conflict that does not seem to be ending; it is full speed ahead with investments in AI, with a worrying downtrend in unemployment for Gen Z graduates; gas prices at the pump and grocery prices are higher than 2025; and there is still the never-ending push to end the Russia invasion of Ukraine. It does not seem to get better for Mexico amid the ongoing accusations from the Trump administration that President Claudia Sheinbaum is being controlled by organized crime. This comes at the same time a new deal is being negotiated to renew the USMCA with all three countries, including Canada. If Canada is not included in a new deal, it would mean a one-sided cancellation of the agreement until such conditions allow for a new, one-on-one negotiation with the United States alone, without Canada. This would be quite a shock of uncertainty for new foreign investment into Mexico. Work is also ongoing to reopen energy markets, mostly oil and gas, and to restart the economy after years of nationalism under the same party currently governing with a new, constrained, populist woman president.
Yet, Mexican GDP has delivered a negative start for Q1 and Q2, although it will likely receive slight relief from the 2026 World Cup games in the country’s three, most populated cities: Mexico City, Guadalajara, and Monterrey. In May both S&P and Moody’s downgraded Mexico. S&P downgraded its rating to negative from stable, with its currency ratings at BBB (longer-term foreign currency) and BBB+ (local currency). Moody’s cuts its ratings to Baa3 from Baa2, and changed its outlook to stable from negative. Only a sudden change of course toward the petition of the United States to deliver a list of 10 public officials labeled as corrupt and engaged in money laundering with organized crime, and the Sinaloa Cartel, in particular, would probably ease threats from Donald Trump to invade Mexico by land to get rid of corruption. There will be midterm elections in 2027 in Mexico and this is the opening salvo for Trump to get his goals accomplished, especially his national security promises and immigration policies. His “Shield of the Americas” is a clear, if not direct, threat. It openly calls for Mexican President Sheinbaum to get rid of collusion with drug cartels. It seems likely Peru and Colombia will be added to the American strategy. More basic reforms will be needed as time goes by if economic activity does not advance at a faster pace.
The United States also has a lot going on. It is angry with the European Union, Japan, Australia, and some Middle East countries for not going along with Trump’s decisions to join Israel and its President Benjamin Netanyahu’s attack on Iran without evidence that Iran was preparing a pre-emptive attack on U.S. interests. Now, after 120-plus days of ceasefire agreements that continue to be violated by Israel on Iran’s allies in Yemen and in Lebanon, Iran has also counterattacked several US military bases, severely bombed Israeli cities using thousands of low-cost drones, with dozens of hypersonic missiles penetrating the Israeli air defense system. Despite the United States claiming it had destroyed Iran’s army and navy, Iran continues to shoot several targets in Israel, Kuwait, Saudi Arabia, Emirates, among others, due to their support of US strikes after the United States killed Supreme Leader Ayatollah Ali Khamenei, top religious leaders, family members, and injured the Ayatollah’s son, seen as his successor. The United States also claimed to have stopped Iran’s nuclear program, after heavily bombarding specific facilities. With support from Russia and China, Iran closed the Strait of Hormuz that carries more than 20% of the world’s oil supply, creating a shock effect in energy markets that has affected Trump’s polling ahead of the US midterm elections in November. Gas prices have climbed as high as US$7-8 dollars a gallon and the price of groceries continues to rise. In 2024, Trump promised no new wars, but it seems the world is moving counterclockwise to this. At this moment, after several on and off interventions by Pakistan and Qatar as mediators, there seems to be another 60-day truce in place, after a deal that will include reparations, unfrozen money from sanctions, freedom to sell Iran oil in international markets, among others. Also, Trump canceled the Barack Obama-brokered Joint Comprehensive Plan of Action (JCPOA) with the G7 Nations for no apparent reason other than Israel’s opposition to it. This story continues to unfold as other top nations are finding alternatives to avoid oil and gas shortages.
In the very specific case of the aerospace, space and defense sectors, the markets are posting incredible numbers given the current situation regarding materials and travel. Demand has increased tremendously. Artificial intelligence has been key to advancing the digital footprint in some areas, making processes more robust and efficient. Hiring is moderate right now but picking up due to the current demand, especially on the services side. Other industries, such as energy, are seeing record demand and record prices due to the Iran-Israel-United States and Russia-Ukraine wars that affect the entire world supply chain. The recent IPO of Space X (and the eventual merger with Tesla) was a trillion-dollar event that exposed the power of the United States in relation to financial strength. Tech giants OpenAI and Anthropic are also expected to IPO later this year. More has to be done to contain food, gas, and home prices and continue to tamper inflation, which has hovered around 3.8% to avoid any type of stagflation or even a recession if these world events get more complicated. The hope is that investor interest will shift and another major correction in the commodity markets will avoid any action for the worse. Today, it is still a mixed scenario. The upcoming midterm election in the United States will be a good indicator of how things end this year.