The Mexican economy faces a reserved outlook for the remainder of the year, as the Bank of Mexico issued a stark warning in its most recent quarterly report. The central bank highlighted that the nation’s economic activity is undergoing a period of “marked weakness,” prompting the institution to lower its growth forecasts for the third consecutive time. The Bank of Mexico now anticipates that the Gross Domestic Product (GDP) will expand by just 1.5% in 2024, a significant drop from the 2.4% estimated in its previous report.
The downward adjustment is attributed to slower-than-expected economic momentum, particularly during the second quarter of this year. Official data from the National Institute of Statistics and Geography (Inegi) reveals that Mexican economic activity grew by a mere 0.2% from April to June, compared to the previous quarter.
Private Investment and External Demand Concerns
The Bank of Mexico’s report also underscores concerns regarding private investment, which is showing signs of reduced dynamism. The central bank cautioned that this trend could persist, driven by ongoing uncertainty stemming from both domestic and international factors. “External demand would continue to show a low contribution to growth in Mexico during 2024, given the expectation that weakness in the manufacturing sector in the United States will persist,” the bank stated.
Several external risks were identified as potential impediments to GDP growth in Mexico. These include a slower growth rate in the U.S. economy, uncertainties linked to electoral processes worldwide, ongoing geopolitical conflicts, reduced public spending, and episodes of market volatility. However, the Bank of Mexico also noted that GDP growth could exceed expectations if public spending increases, if the U.S. economy performs better than anticipated, or if foreign investment rises due to the relocation of companies to Mexico.
2025 Outlook Also Dimmed
The central bank has also revised its GDP growth forecast for 2025, reducing it from 1.5% to 1.2%. This adjustment comes amid concerns about persistent inflation, a recent depreciation of the peso against the dollar, and a decline in the Mexican Stock Exchange, which has been affected by financial nervousness over the progress of reforms in the Judicial Branch within the Chamber of Deputies.
Inflation Pressures Persist
Inflation remains a significant concern for the Mexican economy. The Bank of Mexico’s Board of Governors now estimates that inflation will rise to 4.4% at an annual rate, up from a previous forecast of 4%. Despite this persistent inflation, which reached 5.1% in the first half of August, the central bank opted to lower the reference interest rate by 25 basis points at its last monetary policy meeting, bringing it to 10.75%.
Governor Victoria Rodríguez Ceja addressed the inflationary pressures during the presentation of the report. She attributed the upward pressures on general inflation to shocks in the non-core component, particularly in energy and agricultural products, but expressed confidence that these shocks would be temporary. Rodríguez Ceja suggested that the inflationary environment could allow for further reductions in the reference rate.
Risks to Inflation and Future Outlook
The main risks to inflation, as identified by the central bank, include potential increases in underlying inflation driven by a depreciation of the national currency and rising consumer prices. Despite these challenges, the Bank of Mexico remains cautiously optimistic, projecting that the country will achieve its 3% inflation target by the last quarter of 2025.
The Bank of Mexico’s revised forecasts are consistent with the recent adjustments made by the Economic Commission for Latin America and the Caribbean (ECLAC), which recently reduced its growth forecast for the Mexican economy from 2.5% to 1.9%. However, the Ministry of Finance maintains a more optimistic stance, projecting GDP growth of 2.5% to 3.5% in 2024 and 2% to 3% in 2025.
