The Mexican economy in deceleration: uncertainty and downward prospects

The economy in Mexico is losing momentum and entering a period of uncertainty. While last year was a period of good news in economic terms, this year is shaping up to be more bleak. The latest data shows that the Mexican economy is experiencing a deeper slowdown than expected, leading experts to lower their growth forecasts for this year. Neither the increase in government spending nor the election campaigns were enough to sustain the country's economic momentum. The International Monetary Fund (IMF) has lowered its growth outlook for Mexico for the second time, now setting an expectation of 2.2% for the year-end. This downward revision in estimates has also been followed by analysis firms and investment funds, moving further away from the government's target of 2.5% growth. This slowdown contrasts with the 3.2% growth recorded in 2023, indicating a change in pace in the Mexican economy. Manufacturing production has decreased, as well as consumption, while the creation of new formal jobs has stagnated. It is expected that in the second half of the year, the weakness of the U.S. economy and the electoral process in that country will add to the factors negatively impacting the Mexican economy. Janneth Quiroz, Director of Analysis at Monex, mentions that there were high expectations for robust growth this year, especially after the increase in government spending and the electoral period in June. However, these factors failed to boost private consumption as expected, contributing to the current economic slowdown. Mexico's Gross Domestic Product (GDP) grew by 1.9% in the first quarter of the year compared to the same period last year, according to data from the National Institute of Statistics and Geography (Inegi). This figure represents the sixth consecutive quarterly slowdown, surprising analysts and experts who anticipated greater strength in the first half of the year. Regarding formal employment, the Mexican Social Security Institute (IMSS) reported a 2% year-on-year growth in June, but with a 0.2% decrease compared to the previous month. This confirms the expectation that formal employment will continue to slow down, according to BBVA economist David Cervantes. A recovery is expected in the third quarter, albeit at a more moderate pace compared to previous years, due to the lower economic growth outlook. Consumption has experienced a significant decline so far this year, partly attributed to the increase in prices of fruits and vegetables. General inflation reached 4.98% in the last month, its highest level in years, forcing many Mexicans to adjust their consumption habits. Behind the price increases is the impact of adverse weather, which caused a historic drought and reduced agricultural production. Prices of fruits and vegetables have been growing at double-digit rates for seven months, and recent heavy rains and floods could create a new shock in the supply of these products. In the second half of the year, the external sector becomes relevant, as the slowdown in the U.S. economy has begun to impact the demand for Mexican goods. Despite expectations that companies may relocate to Mexico due to trade tensions between the U.S. and China, investors are in a wait-and-see mode due to the uncertainty generated by the anti-Mexico rhetoric of the leading candidate in the U.S. elections. In summary, the Mexican economy faces a challenging outlook, with a more pronounced slowdown than anticipated and a series of internal and external factors that could complicate its recovery. Political and economic uncertainty at both national and international levels pose challenges for decision-making and short-term economic stability in the country.