Mexican economy

Mexico City. In August 2024, remittance income amounted to 6.87 million dollars, which represented an annual increase of 9.3 percent, the Bank of Mexico (BdeM) revealed this Wednesday.

He highlighted that remittances sent by residents of Mexico abroad registered an annual increase of 12.3 percent, reaching a level of 104 million dollars.

With these results, the surplus of Mexico’s remittance account with the rest of the world was 5,983 million dollars, greater than the 5,476 million dollars that was presented in August 2023.

With seasonally adjusted series, in the eighth month of 2024, remittance receipts showed a monthly increase of 10.8 percent, while expenditures showed a monthly decrease of 6.5 percent.

Thus, in August 2024 the surplus in the remittance account was 5,654 million dollars, higher than the 5,084 million dollars observed in the previous July.

Cumulatively, that is, from January to August 2024, the value of income from remittances was 43,027 million dollars, greater than the 41,474 million dollars reported in the same period of 2023 and which represented growth 3.7 percent annually.

In the last 12 months (September 2023-August 2024), according to BdeM, the accumulated flow of remittance income resulted in 64,872 million dollars, an amount higher than the amount reported in the previous July of 64,353 million dollars (August 2023-July 2024).

Mexico City. The timely monthly indicator of manufacturing activity (Imoam) anticipated that the sector continued to grow in August, reported the National Institute of Statistics and Geography (Inegi).

For August 2024, the Imoam stood at 110.5 points, which pointed to an annual advance of 1.4 percent in manufacturing activity. This advance would come after the evolution of the country’s industrial activity, with seasonally adjusted figures, grew 0.6 percent annually last July, according to the Monthly Indicator of Industrial Activity (IMAI). Likewise, at a monthly level it advanced 0.2 percent in July.

The timely indicator had a range between a drop of 1.5 percent and a growth of 4.3 percent. The observed value for August will be known on October 11, with the monthly indicator of industrial activity (Imai).

And this Thursday, Inegi presented the timely monthly indicator of manufacturing activity, as an advance calculation of the monthly indicator of industrial activity in the manufacturing sector.

The slowdown in manufacturing production in Mexico materialized in an environment of lower growth in external demand, as indicated by the latest retail sales data in the United States that showed stagnation in June, with a 1.9 percent drop in the vehicle and auto parts segment (the largest contraction since January), while spending on durable goods in that country continues below its level at the beginning of the year (0.4 percent). However, for the seventh and eighth months of the year, a better international outlook is seen that can support the sector and partially recover from previous declines.

Mexico City. Mexico can maintain its investment grade in the next two years, but if the debt reaches 60 percent of the Gross Domestic Product (GDP) it can lose it, BBVA predicted.

“Public debt could approach 60 percent of GDP at the end of 2030 and the investment grade would most likely be lost if there was no fiscal discipline,” commented Carlos Serrano Herrera, chief economist at BBVA Mexico.

“If medium-term fiscal consolidation is not achieved in which Mexico has lower deficit levels, close to 2 percent, we think that by the end of the administration the debt could be reaching levels close to 60 percent of GDP and There is a significant risk that the investment grade could be lost,” he added in the presentation of the Mexico Situation report prepared by BBVA’s Economic Studies area.

The financial institution predicts that the public debt in 2024 will be 50.8 percent of GDP and the public deficit will be 5.0 percent of GDP, which is the highest level in the last 35 years.

“We believe that the macro (macroeconomic) fundamentals that remain in the fiscal sector until now help support the prospects that Mexico can maintain the investment grade in the short term, during the next two years,” commented Iván Fernández Mendiola, economist BBVA Mexico senior at the event.

He stressed that it is important to review the Mexican fiscal framework to increase collection, and that the most efficient way to do so is to reduce informality and continue fighting evasion, as well as change Pemex’s business model so that it represents less pressure on the public finances in such a way that lower deficits can be achieved.

“Because otherwise, we do believe that in the coming years there is an investment grade risk,” he reiterated.

Recession risks

BBVA analysts maintained that they cannot rule out a recession. They explained that if the judicial reform generates uncertainty among investors because it will not be known for a year how it works and who the judges are, it would generate a negative shock to investment.

Furthermore, if the government decides to lower spending to reduce the deficit from 5.9 to 3.0 percent, it will have a negative impact on growth, in addition to a possible slowdown in the United States. “All this could result in a recession in Mexico,” Serrano asserted.

He highlighted that the Mexican economy will slow down significantly because there is less public and private investment in the flagship infrastructure projects that were carried out in the last six-year term and that are about to conclude.

In turn, the lower growth is foreseeable due to the slowdown in the manufacturing sector in Mexico, as a consequence of the fact that this market is also expanding at a slower rate in the United States.

The analyst reported that the financial institution revised downward the outlook for Gross Domestic Product (GDP) growth to 1.2 percent in 2024 and 1.0 percent in 2025.

At the beginning of the year, BBVA’s expectation was 2.5 percent in 2024 and 2.4 percent in 2025.

Greater drop in rates

Fernández Mendiola highlighted that weaker economic activity drives a better inflation outlook and that the Bank of Mexico has room to cut interest rates.

BBVA expects that in the fourth quarter of 2024 inflation will close at 4.8 percent and by 2025 there will be a sustained return towards the Bank of Mexico’s target range.

Fernández explained that the monetary policy of the Mexican central bank is one of the most restrictive in the world and that many members of the Governing Board of the Bank of Mexico are willing to promote a cycle of lower interest rates.

He even detailed that two cuts of 25 basis points are expected in November and December, and that in the third and fourth quarters of 2025, the central bank will lower the reference interest rate by 50 basis points to bring it to 7.50 percent.