Over the next two years, Mexico will experience the traditional political and electoral cycles of the past six administrations, during which the economy will expand and contract in response to the transition to a new administration, Moody's Analytics said in a note. Ta.
“This means that the economy will benefit in 2024 and be affected in 2025… In particular, the economy is affected by changes in government every six years, but it also benefits from increased spending during the electoral process. Enjoy,” the memo said. .
According to Moody's, the economic political cycle of the past 40 years has included two distinct phases.
“The first is the expansion phase, which occurs during the first six months of the last year of a government. In this phase, fiscal policy is used to finance the electoral process and complete infrastructure for the government in power. “It is also used to stimulate the economy and create a sense of social well-being, with the aim of gaining voters' preferences for policies. The party in power.” .
The second stage involves tapering, starting with the withdrawal of fiscal stimulus after the election and continuing through the first half of the new administration's first year. This is because each new administration introduces delays in implementing federal policy. budget.
“This spending delay, combined with uncertainty surrounding the new economic and political team, has led to delays in consumption and private investment decisions, which are reflected in a slowdown in economic activity,” Moody's said.
Mexico's economic growth over the next two years should continue to be determined by politics, Moody's said, as nothing has emerged so far that could disrupt the cycle.
Next year will be the final year of the six-year term of President Andrés Manuel López Obrador's government, with presidential and parliamentary elections scheduled for June, as well as elections at the state and local government level.
election budget
Investment bank UBS wrote in a separate note that Mexico's proposed budget for next year shows a significant increase in public spending and the largest budget deficit in more than 20 years.
In UBS's opinion, “this project reflects the political realities of an election year.” Public spending will increase from 25% of GDP in 2023 to 26.2% in 2024, with most of the increase coming from increased subsidies, social programs increasing from 2.4% to 2.7% of GDP, and contributory pensions. This is due to This rises from his 4.2% of GDP to 4.4%.
“This means the next administration is likely to face fiscal challenges, including the need for tax reform and long-term solutions to fiscal obstacles.” [federal oil firm] Pemex will present,” the UBS memo said.
Moody's predicts that in 2024, “the electoral process will result in increased public spending to finance elections and increased private spending due to the creation of temporary jobs as demand for campaigns and campaign-related services increases. “Both will be brought about.'' This is due to individual donations. ”
Additionally, Moody's said the government plans to accelerate public spending to complete infrastructure work before the end of its six-year term. “The economy will recover in the first half of 2024, but this spending stimulus will fade once the election passes, and also because the federal budget typically closes at the end of an administration.”
“Taking into account delays in budget implementation due to changes in economic and political teams, the effects of contraction at the end of the six-year term will likely increase as the new government takes office. “The slowdown will be prolonged, this time lasting from the fourth quarter of 2024 to the first quarter of 2025.”
The magnitude of the economic slowdown in early 2025 will depend on the degree of certainty in the new government's economic plans and the confidence the new economic team inspires, Moody's said.
The memo concluded that economic growth in 2025 is likely to be lower than in 2024, as has happened during the past six administrations. However, given that in this new political cycle the new government will be inaugurated in October rather than December, the economic slowdown in 2025 may be less pronounced.
Post-pandemic adjustments
James Salazar, CI Banco's deputy director of economic analysis, acknowledged that the dynamics of the 2024 election will influence the economic cycle, as public spending is expected to increase, but added: “This means that the growth rate will hardly slow down,” he told BNamericas. After these rebounds seen due to the significant decline recorded during the pandemic, albeit gradually. ”
“The economy has been growing at an above-average pace for the past decade, and that's because it's just recovering from the hard blow of COVID-19,” Salazar said.
Growth is therefore expected to be slower, but that does not necessarily mean that 2025 will be worse than 2024. [the economy] “We'll probably see more than 3% growth, but we're still going to have the backlash from the pandemic, so this isn't necessarily the growth we've seen on other occasions, but that growth will slow down over the next few years.” he added.
Salazar expects growth to be between 2% and 2.2% by 2025, “closer to the levels we're used to.” In that sense, moderation is expected, not because it necessarily makes this year bad or good. ”
According to the General Economic Policy Standards published by the Ministry of Finance in its 2024 Budget, GDP will expand by 2.5% to 3.5% next year, before slowing to 2% to 3% in 2025.
Meanwhile, the IMF revised its forecast for Mexico's economic growth this year to 3.2% from 2.6%, before slowing to 2.1% in 2024, according to a report released after its representatives visited the country.
