### BANXICO Lowers Mexico’s GDP Forecast for 2024 to 1.5%; 1.2% for 2025
On August 28, 2024, the Bank of Mexico (BANXICO) reduced its growth forecast for the national economy in 2024 from 2.4% to 1.5%, and for 2025 from 1.5% to 1.2%. The central bank attributed this downgrading to the economic slowdown experienced in the first quarter of 2024, as detailed in their quarterly inflation report.
“Growth in the economy is expected to be moderate in 2024 and 2025, mainly supported by domestic spending. Private consumption and, to a lesser extent, private investment are anticipated to continue to expand,” explained BANXICO.
The central bank highlighted that the current economic scenario is fraught with uncertainty due to both internal and external factors, some of which have been evident since the first quarter of 2024.
Additionally, BANXICO mentioned that the increase in public spending is expected to have a moderate impact on the economy, similar to the weak external demand resulting from pressures in the U.S. manufacturing sector. “For 2025, a better performance in U.S. industrial production is expected to contribute to greater external demand for our country. However, these projections are subject to high uncertainty,” the Bank emphasized.
The new growth forecast from BANXICO is notably lower than the 3% expected by the Ministry of Finance and Public Credit (SHCP) for 2024. It also falls below the 2.2% forecasted by the International Monetary Fund (IMF) and the 1.9% projected by the Economic Commission for Latin America and the Caribbean (ECLAC).
“The national economic activity is undergoing a period of marked weakness. The economy registered a slight contraction in the last quarter of 2023 and showed marginal progress in the first quarter of this year,” the central bank specified.
According to BANXICO, risks to Mexico’s economic growth include slower-than-expected growth in the U.S. economy, increased financial uncertainty due to various global electoral processes, escalated geopolitical conflicts, or adverse weather events impacting economic activity in Mexico.
On the other hand, the bank noted that Mexico’s GDP could improve if public spending has a more substantial long-term impact, if the U.S. economy performs better, or if there is an increase in investment resulting from the relocation of foreign companies.
Regarding inflation, the central bank maintained its forecast from the previous monetary policy decision, anticipating a convergence towards the 3% target by the end of 2025, in line with the prior report’s expectations. However, it cautioned that “the possibility of more persistent inflation shocks, exacerbation of these shocks, or new inflationary pressures cannot be ruled out.”
In terms of employment, BANXICO revised its forecast downwards for job creation between 410,000 and 550,000 positions registered with the Mexican Social Security Institute (IMSS). This was a reduction from the 510,000 to 670,000 formal jobs estimated in May.
“IMSS-affiliated formal employment has shown a clear deceleration, mainly due to stagnation in job creation in manufacturing and slower growth in construction employment,” the autonomous central bank explained.
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### Additional Reporting on Mexico’s Economic Outlook
In further developments concerning Mexico’s economic conditions, various financial analysts have echoed concerns similar to BANXICO’s downgraded forecasts. Reports indicate that a combination of both internal economic weaknesses and potential external shocks, such as potential tightening of monetary policy in the United States, may further strain economic performance.
Several economists predict that the Mexican economy might face challenges from fluctuations in commodity prices, as the global market’s response to geopolitical tensions remains unpredictable. These economic vulnerabilities highlight the need for robust domestic policy initiatives aimed at bolstering resilience against external shocks.
Moreover, recent industry reports suggest that Mexico’s tech and service sectors may see some growth as businesses continue to adapt to the post-pandemic environment through digital transformation and regulatory reforms, potentially offsetting some of the predicted economic slowing.
As of now, the government and financial institutions are encouraged to focus on fiscal policies that promote sustainable economic growth and investment in key infrastructure projects to mitigate the impacts of these ongoing challenges.