In the balance
Mexico, the world’s twelfth-largest economy by nominal GDP,5looks to be heading neither toward major, imminent danger nor a huge leap into growth territory.
Currently, the best test will be the presidential elections, slated to be held on June 2, 2024.6 According to Oraculus,7 the country’s leading poll aggregator, there are two discernible patterns: First, it is likely that Morena, the current ruling party, may retain power, and second, if this happens, it is going to be difficult for it to have full control to decide the country’s policy, as several regional governments and congressional seats would likely pass into the hands of the opposition. With this, Mexico would continue to experience a political tug of war that will generate reluctance to change, with limited risks and opportunities.
In economic matters, some indicators have adopted a position of equilibrium. Inflation, for example, is one of them, for since April 2023, its volatility has decreased considerably, especially with core inflation. Deloitte anticipates that Mexico will end the year with a 4.3% annual inflation rate, close to the current 4.7%, possibly continuing to be in the range of 4% to 5% over much of the next three years.
This will prevent the Bank of Mexico from relaxing its monetary policy stance too much, and although Deloitte estimates its benchmark interest rate to fall from the current 11% to 9.75% in 2024 and 7% in 2025, it would still be one of the highest in Latin America, prolonging the outstanding performance of the Mexican peso. For this variable, we expect a rate of 17.60 pesos per dollar at the end of 2024 and 19.20 pesos per dollar in 2025, after an appreciation of 18% over the last couple of years.
Ultimately, all this reflects that as long as Mexico does not embark on a mission of true structural change, driven by institutional reforms and productive investments, the country will delay growth for longer. For now, all eyes will be on Mexico’s general elections (together with the US presidential elections at the end of the year), as well as the new government’s transition and approach to economic policy.
