Mexico's Economic Outlook for 2025

The Chamber of Deputies, those elected tightrope walkers of Mexican pesos, are preparing for their annual balancing act – approving the Federation Expenditure Budget (PEF) for 2025. This isn't just any budget; it's the first act of the next six-year presidential term, setting the stage for the economic performance to come.

The Ministry of Finance and Public Credit (SHCP), ever the concerned circus ringmaster, has already unfurled the big top – the "General Pre-Criteria of Economic Policy 2025". This document sketches out the main attractions of the coming fiscal year, and it paints a picture of a more cautious economic tightrope than we've seen recently.

The projections themselves are a balancing act. Growth? Sure, but a slower walk on the wire – a projected GDP range of 2.5 to 3.5% in 2024, slowing down to 2 to 3% in 2025. Inflation, the ever-present net with hungry crocodiles snapping below, is expected to be 3.8% in 2024, easing slightly to 3.3% in 2025.

The peso, Mexico's economic trapeze artist, is expected to hold steady against the US dollar, with an exchange rate of around 17.8 pesos per dollar by the end of 2024, inching up to 18 pesos by 2025.

Oil, the longstanding high-wire act of the Mexican economy, is showing some concerning wobbles. The price of Mexico's export mix is predicted to take a tumble from $71.3 per barrel in 2024 to a less flashy $58.4 in 2025. Production, however, is expected to see a slight increase, from 1,852,000 to 1,863,000 barrels per day. Here's hoping those extra barrels can compensate for the price drop – or else someone might end up in the crocodile pit of a budget deficit.

A Shrinking Slinky in the Face of 2025

The spotlight is on two key elements: programmable spending and the ever-elusive budget deficit. Here's where the rhythm gets messy. Programmable spending, the government's designated "spend it or lose it" budget, is facing a hefty cut of 833 billion pesos – a real decrease of 12.1% compared to 2 thousand-twenty-four. Imagine asking a flamboyant flamenco dancer to suddenly perform a minimalist ballet – that's the kind of budgetary shift we're looking at.

Now, there's a justification for this financial fandango. The current administration claims 2024 will see a surge in spending to complete priority infrastructure projects. This, they argue, is a temporary step – a grand jeté before a more graceful pirouette in 2025. The hope is that a lower deficit in 2025 will keep public debt as a percentage of GDP stable, hovering around 50.2%. That's a neat trick, if they can pull it off.

Here's the rub: achieving a lower deficit in 2025 requires some fancy footwork. The plan? A primary surplus in 2025, meaning the government will actually take in more money than it spends (excluding interest payments on existing debt). This, combined with a significant reduction in public spending, should keep the rhythm section – public debt – in check.

The government argues this spending cut is feasible because of "non-recurring expenses" made in 2024. Think of it as that extravagant costume purchased for a one-time performance – no need for such extravagance next year. This fiscal "space" created in 2023, with lower deficits and debt, allows them to (theoretically) waltz into 2025 with a tighter budget belt.

So, can Mexico pull off this economic merry-go-round? The jury's still out. While the government maintains a confident stance, analysts are circling the dance floor with a critical eye. Can spending be cut so drastically without impacting essential services? Will the 2024 spending surge truly be temporary, or will it morph into a permanent overture of overspending?

Mexico's Growth Gamble

The "General Pre-Criteria of Economic Policy 2025" paints a picture of an economy poised for moderate growth, with a projected range of 2.5% to 3.5% in 2024 and a slightly slower 2.3% in 2025. This growth is expected to be fueled by two key factors: a robust domestic market and a dynamic labor market. People are spending, businesses are hiring, and the overall economic mood is upbeat.

Another factor greasing the economic wheels is Mexico's impressive collection of trade agreements. The country, particularly its prime position as the U.S.'s main trading partner, is considered a global commerce powerhouse with goods flowing freely across borders, boosting economic activity.

But the potential doesn't stop there. The document predicts a future where advancements in information technology, especially artificial intelligence (AI), will become increasingly tangible. This AI revolution is expected to be a game-changer, boosting productivity across various sectors and fattening the profit margins of companies that embrace it, allowing businesses to whack open new levels of efficiency and profitability.

The benefits extend beyond established players. The rise of AI is also expected to pave the way for new companies, further enriching the consumer experience and streamlining production processes. A flurry of innovative startups, each adding a new candy to the economic pie, creating a more diverse and exciting market landscape.

Beyond technological advancements, the document highlights the potential of "nearshoring" – the relocation of companies to Mexico. This trend, coupled with existing production chains, is expected to solidify Mexico's position in the global supply chain. This "reshuffle" could benefit established sectors with strong US ties and create entirely new economic avenues with unexpected candies – new industries and economic opportunities bursting onto the scene.

However, achieving this rosy economic future isn't guaranteed. The document acknowledges that these forecasts rely on the success of various economic policies. These policies aim to strengthen the domestic market, reduce income inequality, and make Mexico an even more attractive destination for investment. In essence, these policies are the strings holding the balloon aloft. If they're strong and well-implemented, the economic candies will rain down. But if they fray or break, the whole endeavor could come crashing down.

A Bureaucracy with Too Many Lawyers?

By law, the government has until April 1st each year to send a preliminary economic framework to Congress, the foundation for the full Economic Package due in September. This year, however, things are getting a bit spicy. The new government won't take office until October 1st, so the full package won't be delivered until November 15th – a six-week delay that throws the whole process off rhythm.

Now, Congress, bless their sequined suits, could technically waltz through the whole thing by the end of the regular session. But here's the rub: they might need extra time to debate the package, which could necessitate an "extraordinary period" – basically, adding an entire new track to the already lengthy playlist.

The document itself arrives with a flourish of legalese, citing articles from various laws like the Federal Budget and Fiscal Responsibility Law and the Internal Regulations of the Ministry of Finance. Imagine the document as a particularly dry instruction manual for a very specific tango – all the steps outlined, but none of the passion.

So, what does this bureaucratic spectacle mean for the Mexican economy? It injects a dose of uncertainty into the mix. Businesses might have to hold off on investment decisions until the package is finalized. Investors might do the economic equivalent of the "watch and wait" maneuver. The whole situation creates a bit of a hesitant shuffle instead of a confident stride.

However, there's a silver lining. The extended deadline could allow the new administration more time to shape the Economic Package to their vision. This could lead to a more coherent and effective strategy, one that truly gets the economic party started.

Ultimately, the success of Mexico's economy depends on how well the various actors can navigate the complex steps. Can the government and Congress work together to create a clear and timely package? Will businesses and investors find a way to move forward despite the uncertainty? Only time will tell if this bureaucratic balancing act will end in a graceful embrace or a comical stumble.