“This depressive economic effect is known as the ‘political cycle of the economy’, and it has been uninterruptedly present in the last four decades. Therefore, the least that can be expected in this change of government is a weakening of economic activity, which could become an economic contraction if the business climate worsens and uncertainty worsens due to the first actions of the new government and the lack of experience in managing policy and risk administration,” Coutiño warned.
Last week, the Organization for Economic Cooperation and Development ( OECD) lowered its outlook of 2.0% in May, for the Mexican GDP, placing it at 1.2%. “Domestic demand has boosted activity in Brazil, India and Indonesia, but has slowed in Mexico, where the services sector has lost momentum,” the international organization noted.
“Yes, there is the possibility of an economic contraction, a recession, it is a complicated situation, it is an economy that is slowing down. There are some factors that are going to cause this (…) although monetary policy is going to be increasingly less restrictive, fiscal policy could be very restrictive and that could generate a fall in aggregate demand and therefore a fall in inflation. production,” explained Rodolfo Navarrete, chief economist at Vector Casa de Bolsa, an institution that forecasts GDP growth of 1.4% by 2025.
Fiscal policy would be restricted, in addition to the change of government, by the commitment of the public administration to reduce the budget deficit, which is expected to reduce from 5% of GDP in 2024, to 2.5% in 2025, which would imply cuts and adjustments to public spending.
For this reason, analysts are waiting, to finish adjusting their forecasts, for the proposal of the 2025 Economic Package, which will be led by Rogelio Ramírez de la O, Secretary of the Treasury, and who has a deadline of November 15 to present it to Congress. .
“The problem for next year is fundamentally related to public finances. When the Budget comes out, we are going to review that figure (1.4% for 2025),” Navarrete added.
Víctor Ceja, chief economist at VALMEX, ruled out this possibility because “since the last major crisis in Mexico, in 1994, there have been fundamental changes that have allowed the government transition to be smoother.”
“For 2025 we have a forecast of 1.4%, we do not see a recession, extraordinary things would have to happen, for example, an abrupt slowdown in the US economy, but we do not see it; a very strong adjustment to public spending, or geopolitical conflicts that can generate impact at a global level,” commented Ceja.
But he warned that if the budget deficit is not reduced by the end of 2025, there could be a slowdown in the economy in 2026 or 2027, since the credit rating agencies would lower Mexico’s rating, which would imply an outflow of capital, in addition to a strong depreciation in the exchange rate, and higher interest rates to avoid this capital outflow.
The political cycle of the economy is not exclusive to Mexico, since it is also present in some emerging economies, especially in those in which the budget exercise lacks protection from the political transition. However, “among the main economies of the region, Mexico is the country where the political cycle is still a very important determinant of the direction of the economy every six years, this due to the lack of institutional arrangements that ensure a budget exercise without interruptions due to the change of government,” added Coutiño.
