Mexican President-Elect's Team Pledges Economic Stability Amid Concerns

2024-06-04 18:57:13.139000

Mexico's newly elected president, Claudia Sheinbaum, is facing challenges as she prepares to take office on October 1. One of the main challenges is the country's fiscal deficit and decreasing oil income. Sheinbaum will need to find ways to address these issues while also dealing with persistent cartel violence and a divided country. Additionally, the outcome of the U.S. presidential election will have a significant impact on Mexico's security, trade, immigration policies, and internal decisions about the role of the military. Sheinbaum's Morena party's congressional majority could give her the power to amend the constitution, which raises concerns about the separation of powers. However, it also gives her the independence to take action without having to consult others. The article emphasizes the importance of a strong government that defends the separation of powers and the need to strengthen civilian police and prosecutor's offices to address Mexico's increasing violence [29b09865].

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].

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].

Mexicoā€™s 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].

Mexico's finance minister reassured investors that president-elect Claudia Sheinbaum would ensure the stability of the country's economy after her election win rattled financial markets. The stock market dropped six percent on Monday as investors worried that Sheinbaum's victory would make it easier to push through reforms potentially damaging to the economy and business [f16e5b26].

Mexico's finance minister, Rogelio Ramirez de la O, assured investors that the government's project is based on financial discipline, respecting the autonomy of the Bank of Mexico, adherence to the rule of law, and facilitating national and foreign private investment. Sheinbaum, who will be Mexico's first woman president, inherits a fiscal deficit that the International Monetary Fund expects to reach 5.9 percent this year. The credit ratings agency S&P Global Ratings said it doesn't believe that the new administration is likely to materially change the country's fiscal, monetary, or trade policies. Sheinbaum won around 59 percent of votes and will take over the presidency on October 1 [4bea05ed].

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