Investment and Debt

El Financiero, July 11th, 2025

On Wednesday, we celebrated the rebound in the automotive industry, which was up 5% compared to June 2024. Now we must report that in the case of heavy vehicles, production in June fell by 36% compared to the same month last year. This adds to the poor data we already discussed regarding capital goods imports, leading us to expect that investment—which was declining at a rate of nearly 8% annually in April—will fall even more in May and June.

You’ll be able to find out today, as the report on industrial activity is being published—this includes construction, which is the missing indicator needed to have a clearer picture of investment. In April, the decline in that area was -5.5%. Let’s see what was published this morning.

What happens with investment is quickly reflected in employment. This has been the case for decades (although the relationship isn’t exact), and it seems to be happening again in recent months. With job growth already at zero, we can expect investment to contract by more than 10% annually in May and June. As always, we’ll see.

You also already know that the decline in public investment is historic, at least through May, and it’s hard to see how private investment could compensate, especially given that rising global and domestic uncertainty is already having an impact.

Perhaps it’s worth incorporating an element we haven’t used before—not because it’s directly related to domestic investment or consumption, but because it contributes to growing global uncertainty: public debt. I’m not referring to Mexico’s debt, but to global debt, so to speak. After severe indebtedness around the two World Wars, the world’s most economically important countries put their finances in order, and by 1955, their debt averaged around 36% of GDP. Thanks to the international financial system of the time, ten years later it had dropped to 24%, and it managed to stay around that level despite the collapse of that system. By 1975, it remained steady.

However, the end of that system, the spike in oil prices, and above all the liberalization of international capital flows (which are the foundation of the global trade we now enjoy) caused debt to rise to 42% of GDP by 1985, nearly 56% a decade later, and by 2005 it reached 67%—a forty-point increase over thirty years.

Then came the Great Recession, when poorly managed private debt had to be absorbed as public debt, and by 2015 we were at 92% of GDP: a 25-point increase in ten years. In the following decade came the pandemic, so today we are at about 114% of GDP—22 more points in another decade.

The current level of debt in the richest countries (not including China, which is far above these figures) is similar to what they had at the end of World War II. Now, unlike then (or any prior era), government debt is not due to military spending, but rather to social spending and the need to prevent financial disaster. Some people blame only social spending and call for a small state where everyone fends for themselves. Others claim the whole problem stems from financial bailouts, and advocate for higher taxes on the rich, wealth caps, and even expropriation of excess wealth.

Both perspectives are mistaken, as you might imagine, but there is no doubt that we are facing an extremely complex environment unlike anything we’ve seen before, one that threatens the global financial system. We must not underestimate it—because we’ll arrive at collection time with no money in hand.