On May 13, 2020, Sheppard Mullin co-sponsored a webinar hosted by the United States-Mexico Chamber of Commerce involving Mexico's economic outlook and the impact on the maquiladora industry. Below are some interesting take-aways from the program.
Economic Outlook
Sergio Luna, Director of the Department of Economic Research and Chief Economist at Citibanamex, explained that notwithstanding the global recession we are experiencing, the Mexican peso is projected to appreciate towards the end of 2020. However, because it will take time to recover from the recession, the GPD growth for Mexico is projected to be at -9% for 2020 but is expected to reach approximately 4.8% in 2021.
Luna also discussed the implications for the labor market, including the unemployment rate, which is expected to increase to 6.3% in 2020 from 3.5% in 2019. Lastly, he indicated that we can expect to recover over 50% of jobs lost in 2020 by the end of 2021.
The Maquiladora Industry
Luis M. Hernandez of the Baja California Chapter of the National Council of the Maquiladora Industry ("INDEX"), explained the current and projected challenges and conditions of the maquiladora industry.
Although the maquiladora industry accounts for a small percentage (approximately 0.3%) of all businesses in Mexico, there are over 6,000 companies currently operating under an IMMEX permit—a special program mostly used by foreign-owned companies that allows them to temporarily import raw materials into Mexico, which are then processed into manufactured products for export. These companies represent approximately 53% of the total exports in Mexico and employ almost 3.2 million people. As such, the IMMEX companies play an important role in Mexico's economy.
Due to the COVID-19 pandemic, more than 58% of the IMMEX companies in Mexico were closed in April, which has caused significant economic and employment-related implications. However, according to Hernandez, many of the IMMEX companies are expected to completely or partially resume operations during May or June in accordance with the social distancing guidelines issued by the Mexican government.
Lastly, Hernandez indicated that the impact on the Maquiladora Industry will also depend on several factors, including (1) globalization (e.g., trade changes, customs, and geopolitics); (2) speed and flexibility within the industry; (3) how the populations works and consumes generally; and (4) social development (e.g., safety and protection of people).
Originally published May 22, 2020
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