Ricardo Pascoe Pierce
The Bank of Mexico (Banxico) sounded the first official alarm bell about the economic slowdown that Mexico will suffer in 2025. Its most recent report lowered its growth forecast from 1.2% to 0.6%. This forecast undoubtedly reflects the uncertainty surrounding the policies that the United States might implement.
It is particularly striking that Banxico’s figure of 0.6% is based on a range from lower to higher growth. Banxico forecasts a GDP range of between -0.2 and 1% for 2025. In other words, it warns of negative growth. The mere fact that it forecasts such a scenario should be cause for concern.
The figure of 0.6% would be the worst since 2020 when the economy fell due to the Covid-19 pandemic and the deep slowdown that it caused. Banxico’s forecast was well below the Ministry of Finance and Public Credit’s growth forecast of 2.3%.
In its Quarterly Report, the Bank of Mexico pointed out that Mexico’s GDP contracted during the last quarter of 2024. “The below-expected performance in the last quarter of 2024 induces an arithmetic effect of a lower growth base for 2025 that reduces the forecast for GDP expansion”.
The problems foreseen for 2025 can be summarized as low dynamism in consumption and private investment, reflecting the environment of high uncertainty. In addition, “limited fiscal consolidation” (i.e., limited and even reduced tax collection) would restrict the contribution of public spending to productive activity. The meager public resources will be directed towards investment in projects with no profitability (the Mayan Train, AIFA, Mexicana de Aviación, and the Dos Bocas refinery). These investments, as a political commitment to the six-year term that has just ended, speak of the narrow scope for public spending to contribute effectively to stimulating the country’s productive base.
Another component of public spending is social benefits, whose impact on economic acceleration is zero, as they are already included in fixed investment calculations. Moreover, these benefits are being extended to new sectors while tax revenues for their financing remain the same.
Finally, the debt incurred during López Obrador’s six-year term, calculated at 7 trillion pesos, puts enormous pressure on public finances because tax revenues have not been able to follow an upward trend.
President Sheinbaum refuted Banxico’s claims, explaining that the decline in economic activity was due to “the completion of the works undertaken by López Obrador” and that new works, such as roads and trains, will begin in the first months of 2025, stimulating the economy. She is also confident that consumption will grow due to social benefits and the “million-dollar” investments the Ministry of Economy promotes with the private sector, including increases in foreign direct investment (FDI).
She denies that any measures Trump might take, such as imposing tariffs on exportable Mexican products, will mainly affect Mexico and that the US consumer will be the one most harmed.
There are two visions and two truths. On the one hand, the data’s truth describes an economic slowdown and continued deterioration of conditions for the future, given the prevailing uncertainty.
On the other hand, the truth of the political narrative sends messages of optimism about supposed investment commitments to come and the idea that tariffs will not affect us but will affect Americans. This narrative assures us that no storm clouds are on the horizon.
Eventually, reality will judge which of the two narratives is closer to the truth.
@rpascoep
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