Economics: Balance of risks skewed to the upside

MEXICO - Report 23 Dec 2024 by Mauricio González and Francisco González

The balance of economic risks for next year is skewed to the upside. Several of the risks anticipated in previous months have materialized. Among them are an institutional weakening, fiscal deterioration, lower business confidence to invest in Mexico, and threats to trade and the external economy due to Trump's victory.
This was coupled with an economic slowdown, with which GDP growth in 2024 could be 1.5%, less than half of last year’s number. This decline will possibly be more pronounced in 2025, with a projected GDP increase of only 0.3%, attributable to a fall in fixed asset investments.

This behavior in private investment was anticipated given that so far we cannot envision any governmental strategy that would encourage it, beyond speeches and invitations to certain businesspeople to listen to the official line.

Public finances continue to deteriorate, since total revenue is increasing at a lower rate than the growth in expenditures, resulting in a rising fiscal deficit. Of particular cause for concern is the persistence of a primary deficit, which contrasts with the surplus posted in previous years. This means that the government is borrowing to pay interest on previously accumulated liabilities.

In this weekly’s outlook report we will analyze the main risks and opportunities for the following year, and present the most important estimates for the macroeconomic panorama.

With regard to the last week's economic news, it was announced that the Banco de México (Banxico) Board of Governors decided to lower the Overnight Interbank Interest Rate by 25 basis points, to 10.00%.

Banxico's decision was made after evaluating the behavior of inflation and its components, as well as the corresponding expectations, taking into account the downtrend in the core indicator.

The central bank expects that the inflationary environment will enable it to continue reducing the benchmark rate, to an even greater degree than it has done in its latest monetary policy meetings.

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