Spending will maintain the country’s economic dynamism: specialists

Mexico City. Fiscal expansion is underway and is gaining momentum transiently to the Mexican economy, economic analysts predict.

Mexico’s preliminary gross domestic product (GDP) figure for the first quarter of 2024 – which was certainly weak, but not as weak as the market consensus expected – is enough to feel optimistic about the economy’s growth in the second quarter, they predict Gabriel Lozano and Steven Palacio, economic analysts at JP Morgan in Mexico.

They maintained that there is still no concrete data for the second quarter. In the coming days, retail sales, investment, income from services and, finally, the GDP indicator for March will be known. Thus, specialists are waiting to see if these reports develop as the preliminary GDP figures imply.

There are not many details with the preliminary GDP report, but certainly enough to predict that there is a significant upward bias to our already optimistic GDP forecast of 4.2 percent annually for the second quarter, but, with the data in hand, The mere statistical drag causes GDP to continue increasing by close to 5 percent in the current quartermaintain Lozano and Palacio.

For his part, Alfredo Coutiño, director of Moodys Analytics (a firm not related to the rating agency), asserted that the economy will grow even more in the second quarter due to the rush to finish public infrastructure works. However, in the third quarter the economy will enter the downward phase of the roller coaster due to the blackout of public spending and the closing of the six-year term.

Political-electoral spending intensified in March with the start of the campaigns, although it began to be carried out in advance in preparation for the electoral process. Fiscal expansion is underway and temporarily boosts the economyCoutiño stated.

Although Mexico’s economic activity began the year reflecting some of the weakness that caused the slowdown at the end of 2023, the historic value added tax (VAT) collection, along with the increase in the amount of banknotes and coins in the hands of the public , the advance payment of social programs and the recovery of automotive production will improve the performance of the economy, said Gabriel Casillas, chief economist for Latin America at Barclays.

The advance payment of social programs, Casillas said, gave an additional boost to private consumption starting in February, since the law prohibits the government from providing this type of support two months before the elections, which will be held on June 2.

Alejandro Saldaña, chief economist at Ve por Más, predicts that in the short term activity will be supported by solid private consumption (strength in employment and social programs), the construction of public works and a resilient US economy.