The recent change in government in Mexico is expected to have a limited impact on the country’s macroeconomic indicators, according to Citibanamex. The new administration led by Claudia Sheinbaum is anticipated to implement a gradual fiscal consolidation strategy in order to preserve Mexico’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.
Citibanamex presented an analysis of Mexico’s financial situation during the second quarter and found that there will be modest macroeconomic impacts. Fiscal consolidation is becoming more challenging due to limited room for maneuver. Revenues increased by 2.4 percent in real terms between January and April, but fell 4 billion pesos below the Ministry of Finance and Public Credit’s budget projections, mainly due to lower oil revenues and weaker tax collection. Additionally, public spending saw an 18.8 percent increase in real terms during the first quarter, which was the highest rate since 1990.
The new macroeconomic scenario outlined by Citibanamex projects slight impacts on public deficit estimates. The depreciation of the exchange rate offsets 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 these challenges.
Overall, while Citibanamex projects limited impacts on Mexico’s macroeconomic indicators as a result of the change in government leadership, it remains uncertain what may happen if negative scenarios materialize and put pressure on public finances.
