Mexico's economy, which was once booming, is now facing a slowdown. After experiencing growth of over 3.4% year-on-year for five consecutive quarters, the economy suddenly slowed to 2.5% in the final three months of 2023. Official data is expected to confirm that it expanded by only about 1.6% in the first quarter of 2024 [0523cbc0].
The current president, Andres Manuel Lopez Obrador (AMLO), has increased government spending during his final year in office, which has boosted consumption but also contributed to high inflation. The strong peso, which has been a point of pride for AMLO, is now posing risks to the economy. As a result, the next president, likely to be Claudia Sheinbaum, will inherit an economy that is slowing down and will face challenges in maintaining growth. Sheinbaum has pledged to bolster social welfare programs and make infrastructure investments while maintaining limits on government spending. However, Mexico's fiscal situation and the need for spending reductions or adjustments may hinder her plans. Additionally, Mexico's ability to attract foreign corporations is limited by longstanding problems such as power supply issues and limited industrial space. The article suggests that an early rebound is possible, as Mexican consumption and consumer sentiment remain strong [0523cbc0].
Mexico's economy registered slight growth in the first quarter of 2024 compared to the previous three months. Gross Domestic Product (GDP) grew 0.2% from January to March, driven by the services sector, which includes trade and tourism. The services sector recorded growth of 0.7% compared to the previous quarter, while the primary sector fell 1.1% and industrial activity decreased by 0.4%. Compared to the same period last year, seasonally adjusted figures show that the country's GDP rose 2%, the lowest annual rate in the last nine quarters. The director of Banco Base, Gabriela Siller, said that despite being above expectations, Mexico's GDP growth in the first quarter was low for an election year and there is a risk of falling into stagflation. The Ministry of Finance expects the Mexican economy to grow between 2.5% and 3.5% this year, driven by greater consumption, infrastructure works, and growing external demand from the United States. In 2023, Mexico's economic growth exceeded market analysts' projections for the third consecutive year [d120bbb9].
Mexico's economy is projected to continue growing steadily after the June presidential election, in line with the performance of the United States. The fiscal front will become more challenging for the new government, with concerns about the impact on inflation. Leading the electoral race is ruling party candidate Claudia Sheinbaum, who has promised fiscal discipline but has yet to offer detailed plans. Gross domestic product (GDP) is forecasted to rise 2.2% this year and 1.9% in 2025, driven by good macro results in the U.S. and increased remittance flows. Mexico's overall fiscal deficit is set to end 2024 at 5.9% of GDP, the highest in IMF public finances data series starting in 2015. The deficit is expected to be reduced to 3.0% in 2025 if goals set by the current economic team are met. The Mexican benchmark rate is expected to be cut by 50 basis points each quarter this year, ending 2024 at 9.50% and 2025 at 7.50%. Some members of the central bank have called for a cautious policy due to fiscal doubts, elevated inflation, and the U.S. Federal Reserve's switch to a more vigilant stance on the start of an easing cycle [ba8eb88f].
Mexico's economy operates at different speeds, with the industrial north outpacing the less developed south. Outgoing President Andres Manuel Lopez Obrador has tried to address this imbalance with infrastructure megaprojects including an oil refinery, a tourist railway, and a new airport. In the northern state of Nuevo Leon, Blanca Lopez manages an aerospace components maker, while Sandra Sanchez works in a restaurant near a new oil refinery in the southern state of Tabasco. The northern region benefits from manufacturing and the 'nearshoring' trend, while the southern region has seen economic growth due to infrastructure investments. However, experts doubt the long-term sustainability of the economic boost in the south. The economic divide is a key issue in the upcoming Mexican elections [ce5d056a].
Mexico's economy, which operates at different speeds in the industrial north and less developed south, is a key issue in the upcoming Mexican elections. Outgoing President Andres Manuel Lopez Obrador has tried to address this imbalance with infrastructure megaprojects, including an oil refinery, a tourist railway, and a new airport. In the northern state of Nuevo Leon, Blanca Lopez manages an aerospace components maker, which is part of an aerospace cluster that has helped boost the region's economic output. On the other hand, Sandra Sanchez works at a restaurant near a new oil refinery in the southern state of Tabasco. The refinery and the Maya Train tourist railway have contributed to the economic growth of the southern region. However, experts have expressed doubts about the long-term sustainability of this economic boost [3d701318].
Mexicoās next president will inherit a country in a unique position to benefit from seismic changes in international trade. The economy had been beating analysts' expectations after reopening from the pandemic, until it started disappointing late last year, partly due to a slowdown in construction and exports to the US. Analysts expect a slight deceleration in economic activity in 2024, a challenge for the new president given persistent inflation, high interest rates, and the largest budget deficit since the 1980s. Domestically, daily life for many Mexicans has been improving. The number of people living in poverty declined under AMLO; the daily minimum wage more than doubled in real terms to 248.9 Mexican pesos, or about $14.7; and the government set aside some $43 billion for social programs this year, more than half for the elderly [cd69b1ea].
Mexican president-elect Claudia Sheinbaum will have to find a way to boost government revenues to pay for social programs, despite her campaign promise not to raise taxes. The budget deficit in Mexico is at its highest since the 1980s due to increased spending on infrastructure projects and welfare programs by outgoing President Andres Manuel Lopez Obrador. Economists and analysts suggest a tax overhaul, including changes to property and car taxes, taxes on corporate profits, 'green taxes,' and royalties on state oil firm Pemex. Mexico's tax revenue is currently only 16.9% of GDP, well below the average for OECD member nations [3eda1556].