The Uncertainty surrounding Mexico will remain high amid constitutional changes, such as the recent one reform to Judiciarywhich could lead to a technical recession and affect the private investment, estimated this Thursday Bank of America (BofA) Securities.
In his report, ‘Notes from the trip to Mexico: Uncertainty remains high and slows the economy’, he noted that “uncertainty will continue to be high amid the constitutional changes.”
This uncertainty, he said, is “the main conclusion” after meetings with political and economic actors in the country. Bank of Mexico (Banxico), the Ministry of Finance and Public Credit (SHCP), part of the president-elect’s team Claudia Sheinbaumas well as with local analysts and investors.
In the document, BofA also warns that uncertainty is, to a greater extent, driven by constitutional changes by the outgoing president. Andres Manuel Lopez Obrador since last February, “will likely affect investment, increasing the risk of a technical recession.”
“The weak performance of the economy in recent quarters, together with a gloomy outlook for the investment and the need for fiscal consolidation, “The probability of a technical recession in Mexico has increased,” the report said.
BofA said that changing the “rules of the game,” that is, the constitutional framework, increases uncertainty, while recalling that “Mexico is undergoing many changes, some of which are far-reaching and difficult to implement.”
Among these constitutional reforms of López Obrador, He highlighted the reform that promotes the election of judges by popular vote and came into force on Monday, September 16, as he stressed that “there are still doubts about its implementation, since secondary legislation has not yet been drafted.”
Amid this uncertainty, BofA insisted on its outlook for the Mexican economy to show below-consensus growth in 2024 and 2025.
“In our view, gross domestic product (national GDP) will grow around 1.1 percent in 2024 and 0.8 percent in 2025, well below the consensus expectation in the Banxico survey of 1.6 percent in 2024 and 1.5 percent in 2025,” the document detailed.
In addition, BofA’s analysis considered that the Mexican government will face a significant challenge on the “fiscal front,” as it will have to implement strong fiscal consolidation in a low-growth environment.
“After a Fiscal deficit of almost 6 percent of GDP this yearwith risks pointing to an even worse deficit, the (Mexican) government intends to reduce the deficit by approximately three percentage points of GDP next year,” he recalled.
However, BofA added, given the trade-off between growth and fiscal restraint that the Mexican government will have to face, “we believe that a more gradual multi-year fiscal consolidation is more likely to materialize.”
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“The government could present a 2025 budget with a deficit of between 3.5 percent and 4.0 percent, but the quality of consolidation will probably not be high and the deficit at the end of the year could end up close to 4.5 percent in 2025,” he concluded.