Mexico’s most recent economic indicators, such as inflation, trade balance and gross domestic product (GDP), confirm that the macroeconomic framework that the Ministry of Finance had anticipated in the Pre-General Criteria for Economic Policy 2025 has broken down and that trends are unfavorable, despite the fact that the United States (US) GDP accelerated in the second quarter compared to the first.
While underlying inflation continued to decrease to 4.02% in annual variation in the first half of July, non-core inflation shot up to 10.64% driven by fruits and vegetables (25.69%) and energy (9.16%), but there are also significant pressures on some components of the underlying inflation, such as services. The housing shortage has generated a significant increase in rents, which are not clearly reflected in the Housing index, as Jonathan Heath, among others, has pointed out in the past.
Household consumption has weakened, especially among low-income households, which spend a greater part of their resources on food and rent, as well as because of high interest rates that have increased the cost of their debts.
Investment has weakened because many entrepreneurs are not only affected by higher financial costs, but also by the uncertainty that exists in the external and internal environments. Some investors have paused their projects until the scenarios are more clearly defined, either because of the tariffs that could be applied, because interest rates have not decreased as expected or because the business environment has deteriorated and confidence in the country has decreased, to the point that in the last survey of expectations, insecurity ceased to be the main factor that could weaken growth, to be surpassed by internal political uncertainty, which has been reflected in the exchange rate.
The June trade balance shows a decrease in exports in general, and an increase in imports, except for consumer goods affected by lower demand and the depreciation of the exchange rate. The external engine of the economy has not yet been reactivated, given the weakening of industrial production in the US, since the most notable contribution of consumption came from spending on services, as reported last week, and not in vain inflation is higher in this segment.
In this sense, Mexico’s low GDP growth of 0.2% in the second quarter compared to the previous one (0.3% in the first), is understood by what was previously stated, despite the fact that the leading indicator anticipated a reactivation; but the coincident indicator has continued to fall; the opposite of what happens in the US, where the leading indicator has continued to fall, but the coincident indicator has continued its upward trajectory, defying the omens of recession.
In this sense, the signals sent by the composite indicators have been contradictory, with the US announcing a recession that never came and Mexico announcing a recovery that ended in lower growth, but if this trend continues it could end in an economic contraction, at a complicated time due to the change of government.
In the presentation by the Ministry of Finance of the economic and public finance results of the current administration, yesterday perhaps what was most disconcerting was showing the Pacific as a success, when we observed a growing inflation, because it was kept artificially low with subsidies to energy in 2022 and price controls. Public debt as a percentage of GDP according to official estimates, will end at 49.7% of GDP and not 48.6% as the statement said and higher than the 44.8% of 2018. Hopefully officials will review the figures in the public finance report released on July 30.
Addendum
- The Federal Reserve kept the federal funds rate unchanged, but the possibility opens up for September depending on the observed inflation.
- I clarify that I was only able to provide data up to 2023 on passengers and flights a week ago for Mexico City, because as of January 2024, information on airports managed by Sedena and Semar is no longer published, according to the derived statistics reported by Sectur. Militarization is also reflected in the opacity and lack of accountability. Aggregate data to hide the failure of the current administration’s aeronautical policy.
- The Historical Balance of Public Sector Financial Requirements was 46.8% of GDP in 2023, the Treasury estimates it to be 50.2% in 2024, in turn the total net expenditure went from 25.6% to 26.9% of GDP due to the enormous social expenditure caused by the elections. Fiscal consolidation will begin this year, once the results are obtained. “Take chocolate, pay what you owe.”
- There was blatant electoral fraud in Venezuela. It is shameful to see how Mexico is getting closer to the positions of Cuba, Nicaragua, Honduras and Bolivia, but it is not surprising.
- The justification that the government has made for the overrepresentation of seats in the Chamber of Deputies shows us the lack of consistency of those who were once the opposition. As José Antonio Crespo rightly says, “popular democracy” is nothing more than a disguise for authoritarianism and rather shows a democracy controlled by power, as are the proposals for electoral and judicial reform.
Source: eluniversal
