Mexico City — Mexico is poised to reignite its private consumption and investment engines in 2024, propelling growth in Latin America’s second-largest economy as the country goes through its longest-ever electoral period, two of the countries top analysts said to Bloomberg Línea. Their predictions were made as a record level of public spending was set in motion by the current administration, and despite potential risks associated with Mexico’s presidential election and expectations of an economic slowdown in the United States.
Alejandro Padilla, Chief Economist at Banorte, and Rafael de la Fuente, Chief Economist for Latin America at UBS, both of whom are forecasting robust GDP growth for Mexico in 2024, received Focus Economics’ 2023 Best Economic Forecasters award.
The presidential election is not sounding any alarms in the Mexican market just yet, Padilla and de la Fuente said. The electoral contest will unfold within a democratic and legal framework, with no expectations of any major threats to macroeconomic stability in Mexico, regardless of whether Claudia Sheinbaum or Xóchitl Gálvez, the leading candidates, end up securing the presidency.
“We need to be vigilant about the progress of the electoral process, but the baseline scenario is that there will be continuity in macroeconomic stability,” stated Padilla. “If the political environment becomes more complex due to closely contested elections, that could be a concerning situation. However, current polls indicate a low probability” of that happening, De la Fuente noted.
Nearshoring and foreign investment are two of the other main variables to monitor this year, due to their considerable impact on Gross Domestic Product (GDP) growth.
Economic Forecasts from AMLO and Banxico
At the end of 2023, the Andrés Manuel López Obrador administration confirmed its projection of growth between 2.5% to 3.5% for the Mexican economy in 2024. The government anticipated GDP growth for the final year of AMLO’s term would be driven by private consumption and higher levels of both public and private sector investment.
Household consumption in 2024 was expected to be fueled by higher minimum wages and the implementation of various social programs. After a 20% minimum wage hike as of January, 5.5% of the approved federal budget of MXN$9 trillion will be attributable to only three social programs: Pensions for Older Adults, Pensions for People with Disabilities, and “Sembrando Vida”.
The Bank of Mexico (Banxico), for its part, adjusted its growth forecast upward in Novembre. The revision was attributed to the expansive fiscal measures that were announced ahead of the final year of the AMLO administration.
Banxico now estimates that the economy will grow between 2.3% and 3.7% in 2024. This figure surpasses the 2.1% forecasted at the end of August. Notably, the central bank believes that economic activity will be stronger in the first half of the year, aligning with historical patterns observed in election years.
Alejandro Padilla: Social Programs Support Consumption Inertia
Alejandro Padilla, Deputy General Director of Economic and Financial Analysis at Banorte, told Bloomberg Línea that his bank is expecting growth of 2.4% in 2024, supported by catalysts observed in 2023, such as private consumption, investment, remittances, and favorable conditions in the labor market and bank credit.
While the economy will expand less than the 3.3% estimated for 2023, this year will have several fundamentals that will follow through, such as investment in infrastructure projects that the government aims to complete before the June 2 elections and foreign investment attracted by nearshoring initiatives.
Padilla emphasized that public spending on social programs will be a factor to consider in 2024, as it accounts for 2.1 percentage points of the GDP and contributes to consumption. “We think that the first half of the year will be supported by fiscal stimulus, namely social programs and infrastructure projects, which will help the economy maintain a favorable momentum for consumption and investment,” said Padilla.
Elections in the United States are another factor to consider in 2024, especially if Donald Trump becomes the Republican Party’s candidate and uses migration and trade as political themes. However, official candidates are yet to be confirmed, and Banorte does not consider a recession in the US as its baseline scenario, but rather a moderation of activity, which would affect Mexican performance, dependent on the US by about 58%.
Rafael de la Fuente: Lower Dynamism, but No Collapse
Rafael de la Fuente, Chief Economist for Latin America at UBS, mentioned that the Swiss lender is projecting growth of 2.2% for 2024, still discounting a recession in the United States. Without economic contraction north of the border, growth would rise to between 2.5% and 2.7%.
He also noted that both private domestic consumption and investment will continue to be the two components that will drive domestic demand and overall economic performance in Latin America’s second-largest economy.
De la Fuente expects a loss of dynamism in the external sector, which has already begun to be seen in some sectors of the Mexican economy, such as the non-automotive manufacturing sector. “While some growth drivers of 2023 may lose momentum in 2024, such as employment,” he doesn’t believe it will be a year of collapse.
“He thinks it could be a year where growth remains solid, especially if there is no recession in the US, and the numbers are likely to be close to what the authorities suggest.”
Despite the potential slowdown in the second half of 2024, the forecast of 2.2% for Mexico’s GDP is slightly higher than its historical average, indicating the strength of the Mexican economy in a scenario of a recession in the US halfway through the year. “De la Fuente believes that consumption will benefit from real wages gaining space,” mainly due to falling inflation and revisions in contractual wages following the minimum wage increase.
Regarding investment, he said that private investment has gained momentum in non-residential construction, recognizing that part of the investment boom has a significant public component in the government’s mega-projects. “He added that while private investment might lose strength in the second half of 2024, it can be compensated by nearshoring.”
