Public finances
Traffic light: amber
The new government led by Claudia Sheinbaum, and with Rogelio Ramírez de la O in the Ministry of Finance and Public Credit (SHCP), receives public finances in amber awaiting the delivery of the Economic Packagewhich is expected to be known no later than November 15, which will define how the public deficit will be reduced.
Public spending is greater than the income that reaches public coffers. By the end of 2024, this difference is expected to close at 5% of GDP, and by 2025 the Treasury has already set the goal of reducing it to 2.5% of GDP, in accordance with the economic precriteria released at the end of last March.
Reducing this difference is important to avoid seeing a cut in the credit score by the rating agencies; Moody’s, Standard & Poors, especially Fitch, explained Victor Ceja, chief economist at VALMEX. Achieving this is not a simple matter since it implies cutting public spending, of which around 75% is allocated to items that cannot be touched such as pensions, cost of debt, transfers to the states, in addition to subsidies and transfers for social support, and people who work in the public sector.
In addition, there are already commitments to be fulfilled by the new government, such as pensions for women between 60 and 64 years old.
The adjustments that can be made to public spending must be carried out in a programmed and premeditated manner, since decreases in public spending affect aggregate demand and therefore economic growth is affected, a situation that generates lower tax collection, then “the problem fiscal is getting bigger,” highlighted Rodolfo Navarrete, chief economist at Vector Casa de Bolsa.
Inflation and interest rate
Traffic light: red
Inflation has been outside the Bank of Mexico’s target range for more than 40 months (Banxico), which has caused the rate to reach historically high levels.
Since the six-year term began, in December 2018, 66% of the months inflation was above Banco de México’s inflation objective of 3%. Factors came together that López Obrador’s administration could not fully control: first a pandemic, which led to the closure of the economy, and a return to normality, which became complex due to external factors such as the war between Russia and Ukraine, which exploded in February 2022.
Claudia Sheinbaum’s new government will have to face inflation that remains above 4% and whose forecasts are not optimistic. Although the Bank of Mexico predicts that inflation will reach the 3% goal in the second half of 2025, analysts and the deputy governor of Bank of Mexico himself, Jonathan Heath, see that possibility as still distant.
“Analysts are seeing that core inflation basically went down to where it could go and that between now and the end of next year it’s not going to go down any more,” Heath said.
Analysts and the deputy governor of Banxico himself consider that it has been the salary increases that have affected the behavior of inflation.
