Mexico: Election results are unlikely to alter growth prospects

We will retain our below-consensus 2024 GDP growth forecast of 1.9% for Mexico irrespective of the presidential election results on June 2, and continue to project a 2% expansion in 2025. Loss of momentum in Q4, weak activity in January, and base effects have set the course for this year.

What you will learn:

• GDP growth in 2025 will likely be broadly stable at 2% as nearshoring benefits should offset the contractionary fiscal policy implemented by the next administration. Our forecast is only marginally above the consensus estimate of 1.8%.
• We expect continuity of President Obrador’s (AMLO) policies under Claudia Sheinbaum, who is well ahead in the polls, while Xochitl Galvez could increase public-private partnerships. Still, both candidates will favour further economic integration with the US under the USMCA, supporting foreign direct investment (FDI) inflows, and will keep AMLO’s social programmes.
• That said, campaigns promises from both candidates of sustained 3% GDP growth over the course of the next administration are unrealistic. Even if nearshoring supports short-term growth, we think medium-term growth will be limited to the 1.9% average of the last two decades as restrictive fiscal policy, slowing productivity, and poor capital gains offset the benefits .
• The US elections in November pose the biggest risk to our short-term outlook, as a Trump victory could revive trade tensions and increase financial volatility and economic uncertainty.