SHCP says spending restraint in 2025 will not lead to recession

Mexico City. The spending restraint expected for next year will not necessarily result in a recession of the Mexican economy, given that the fiscal multiplier in activity is not that high, said Rodrigo Mariscal, head of the Economic Planning Unit of the Ministry of Finance and Public Credit. The chief economist added that for the first half of 2024 the public deficit was 2.2 percent, better than estimated, and it is expected that in the second half of the year some global supply effects will be diluted, which will allow the growth estimates of the agency to be met.

At a press conference, he explained that so far the public deficit is at 2.2 percent of the gross domestic product (GDP). This figure could improve “marginally,” as a result of less pressure from the financial cost of the debt and other non-programmable expenses. For now, official projections, based on the Pre-Criteria for Economic Policy, point to a reduction in the deficit, from 5.9 percent in 2024 to 3 percent in 2025.

This proposal for fiscal consolidation, which involves a reduction in spending relative to income, would not necessarily lead to a recession, since the fiscal multiplier does not have the same weight in the Mexican economy as in advanced economies, explained Mariscal.

During the presentation of the public finance and debt reports for the second half of 2024, Mariscal assured that “the Mexican economy continues to show positive results despite a challenging global environment,” which generates “confidence in an orderly transition with solid macroeconomic fundamentals.”

However, the timely GDP data, published by the National Institute of Statistics and Geography (INEGI) hours before, shows that so far the accumulated growth in the first half of the year is 1.9 percent, below the minimum in the Treasury’s forecasts. In the Pre-Criteria, the agency points to the growth being between 2.5 and 3.5 percent and this projection has not been modified.

“At least in what we have observed of the year, it seems that growth will remain stable, we do not expect a slowdown,” and despite the fact that the growth recorded in the first half of the year is not even the minimum of the range forecast by the Treasury, Mariscal is confident that the international supply shocks will fade in the second half of the year, and added to a “solid internal demand”, both on the consumption and investment side, will allow the pace of expansion to be maintained.

The chief economist of the Treasury added that so far this year the fiscal balance has been better than expected, tax collection reached its best level for the first half of the year since 2016, increasing 6.2 percent at an annual rate and public debt is within the goals, at 47.2 percent.