Mexico's economy will grow gradually after the June presidential election, in line with a decent performance in the United States, and the fiscal front will be more challenging for the new government, a Reuters poll showed.
President Andrés Manuel López Obrador's administration has been ramping up spending in anticipation of the referendum, raising concerns among some central bank officials who worry about the impact on inflation.
The race is led by ruling party candidate Claudia Sheinbaum, who has touted increases in the minimum wage and pledged to support state energy companies. At the same time, he also promised fiscal discipline, but did not yet offer detailed plans.
Gross domestic product (GDP) is expected to rise 2.2% this year and 1.9% in 2025, according to the average estimate of 34 analysts surveyed from April 8-18. Consensus for next year was down from the 2.1% forecast in the January survey.
A key driver should be the continuation of good macroeconomic results in the US, which boosts Mexican exports, as well as remittances from the world's largest economy, which reached a record $63.3 billion last year.
“The risks around the forecasts are balanced,” said Alberto Ramos, head of Latin American economic research at Goldman Sachs, highlighting external and internal uncertainties due to the recent increase in the local currency market.
“But the fiscal outlook will be less comfortable than what Lopez Obrador needs to manage, and that will have to be addressed through tax reforms or spending reviews,” Ramos added, citing Mexico's strict regulations restricting investments.
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They expect Mexico's economy to grow steadily after the election
However, the odds seem slim. A key Sheinbaum adviser said this month that if elected, he would not pursue tax reforms in the early years of his term and instead focus on improving working conditions and embracing renewable energy.
According to figures from the International Monetary Fund, Mexico's overall fiscal deficit is expected to be 5.9% of GDP in 2024, the highest for the country in the IMF's general fiscal data series beginning in 2015.
By 2025, it will be almost halved to 3%, and if the goals of the current economic group – which Sheinbaum wants to maintain – are met as the IMF expects, this would represent the largest adjustment in both emerging market and average incomes. Continued funding.
It remains to be seen how the effort will cover state oil company Pemex's losses and debt relief payments that have ballooned during the Lopez Obrador administration.
Financial doubts, persistently rising inflation and the US Federal Reserve's shift to a more cautious stance ahead of the start of an easing cycle have some members of the central bank – called Banxico – futures.
The Mexican benchmark rate was cut by just 25 basis points to 11% from a high of 11.25% in March. The survey's median estimates see cuts of 50 basis points in each quarter this year, ending at 9.5% in 2024 and 7.5% in 2025.
“Panco's policy rate is highly correlated with the U.S. Federal Reserve's rate. Fewer cuts by the Federal Reserve limit Panco's room to cut. However, we still expect Panco to cut rates this year,” BofA analysts wrote in a report.
With information from Reuters.
