Mexico’s New Government and Its Limited Impact on the Economy: Citibanamex Analysis

Citibanamex anticipates that the change in government in Mexico will have a limited impact on the country’s macroeconomic indicators. The new administration led by Claudia Sheinbaum is expected to implement a gradual fiscal consolidation strategy 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 on Mexico’s financial situation in the second quarter and found that there will be modest macroeconomic impacts, with fiscal consolidation becoming more challenging due to limited room for maneuver. Revenues in the country increased by 2.4 percent in real terms between January and April, falling 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 comparable to the 15 percent increase during the global financial crisis when fiscal policy was used to counteract negative economic effects.

The new macroeconomic scenario outlined by Citibanamex projects slight impacts on public deficit estimates, with the depreciation of the exchange rate offsetting the negative effects of lower growth and higher interest rates. However, pressures on public finance stability are expected in 2024 and 2025 as Mexico navigates through this new macroeconomic scenario.