Uncertainty and Risks Dominate Mexico’s Macroeconomic Scene as New Government Takes Over

The change in government in Mexico is expected to have a limited impact on the country’s macroeconomic indicators, according to Citibanamex. The administration led by Claudia Sheinbaum is anticipated to implement a gradual fiscal consolidation strategy to preserve the country’s investment grade status in the eyes of risk rating agencies. However, uncertainty and risks associated with negative scenarios could lead to a deterioration in financial variables, decrease investment, impede growth, and affect public finances.

An analysis presented by Citibanamex on Mexico’s financial situation in the second quarter revealed modest macroeconomic impacts. Fiscal consolidation became more challenging due to limited room for maneuver, with revenues increasing by 2.4 percent in real terms between January and April but falling 4 billion pesos below the Ministry of Finance and Public Credit’s budget projections. Public spending saw an 18.8 percent increase in real terms during the first quarter, the highest rate since 1990. This growth was comparable to the 15 percent increase in 2009 during the global financial crisis when fiscal policy was used to counteract negative economic effects.

The new macroeconomic scenario outlined by Citibanamex projects slight impacts on public deficit estimates, with the depreciation of the exchange rate offsetting the negative effects of lower growth and higher interest rates. Pressures on public finance stability are expected in 2024 and 2025 as a result of this uncertain financial situation in Mexico.