Economic Challenges for Mexico on the Horizon of 2025
With the arrival of new governments in both Mexico and the United States, along with ongoing conflicts in Ukraine and the Middle East, several factors are emerging that will influence the upcoming year, creating a climate of high uncertainty for the global economy. Every decision made by the involved parties could have significant repercussions.
Are we facing a potential recession? How will inflation be affected? What direction will the Mexican peso take? What challenges lie ahead for public finances? What should we expect from the Federal Reserve?
Ricardo Aguilar Abe, Chief Economist and Head of Analysis at Banco INVEX, asserts that despite the slowdown in domestic demand, Mexico is expected to grow by 1.0% in 2025, bolstered by a strong services sector and high public spending. However, there are downside risks, as investment may be impacted by legislative changes or by more attractive conditions in the United States, such as tax cuts.
Enrique Covarrubias, Chief Economist and Head of Analysis at Grupo Financiero Actinver, also rules out a recession, although the likelihood has increased. Looking towards 2025, economic growth may be slow, aligning with a global economy that the IMF projects will grow by 2.2%. This could lead to a slight slowdown in manufacturing production and exports. Investment could see a moderate uptick while consumption remains solid due to social transfers.
Alejandra Marcos, Director of Analysis and Strategy at Intercam Banco, points out that while inflation may follow a disinflationary path, this trend will be more limited. The economic slowdown could help inflation converge toward Banxico's target, but risks remain. Service inflation has been above 5% for years, and aggressive wage policies could complicate the fight against inflation.
Alejandro Saldaña, Chief Economist at Grupo Financiero BX+, states that low growth could moderate inflationary pressures, although we do not anticipate inflation returning to Banxico's 3% target. Wage policies and the lack of significant increases in labor productivity are factors that need to be considered.
Alejandra Marcos, Director of Analysis and Strategy at Intercam Banco, indicates that the exchange rate could serve as a thermometer for uncertainty. As long as tariff threats are avoided, the exchange rate should stabilize between 20 and 20.50 pesos per dollar. However, volatility could be real, especially towards the end of the year with the renegotiation of the USMCA.
Nadia Montes de Oca, Senior Portfolio Manager at Franklin Templeton Mexico, mentions that the depreciation of the peso has been notable. A clearer political landscape in the U.S. is expected to help curb this trend, although uncertainty will continue to be part of the scenario.
Víctor Ceja, Chief Economist at Valmex Casa de Bolsa, highlights the challenges of fiscal consolidation, as the public deficit could be difficult to manage without tax reforms. The promise to reduce the deficit by half by 2025, when it currently stands around 6% of GDP, represents a significant challenge.
Gabriel Casillas, Chief Economist for Latin America at Barclays, mentions that credibility, growth, and the situation with Pemex are the main concerns for public finances. An economic package with credible assumptions is expected to improve market perceptions.
Monetary policy is also under scrutiny, with the possibility of interest rate cuts. Iván Arias Gallegos, Director of Economic Studies at Citibanamex, suggests that cuts will continue as the Fed must keep an eye on inflation and employment.
Among the risks to the global economy are geopolitical conflicts and challenges in managing public debt. The lack of structural reforms could worsen the financial situation.
In conclusion, although 2025 presents a challenging outlook for the Mexican economy, with moderate growth and persistent inflationary pressures, it is crucial that prudent fiscal and monetary policies are implemented to not only navigate this uncertainty but also to seize potential investment opportunities in a complex climate. Attention to these factors will be critical for the country’s economic future.
