Introduction
Despite initial concerns, Mexico has shown remarkable resilience in its financial performance this year. The local stock market, represented by the S&P/BMV IPC index, has delivered an impressive return of 22.55% as of September 9, 2023.
Economic Performance
- Currency: The Mexican peso has revalued by nearly 10% compared to the previous year’s closing rate, currently trading at 18.62 against the US dollar.
- Inflation: Inflation rates have continued to decline, providing relief for consumers.
- Interest Rates: The Banco de México has successfully reduced the reference interest rate by 3.5 percentage points, placing it at 7.75%.
Challenges and Turnaround
At the beginning of 2024, Mexico faced a grim outlook due to the peso’s strong devaluation, high inflation, and declining growth. The fiscal deficit reached 5.0% of the GDP, and Pemex’s critical situation further dampened expectations.
In April, former U.S. President Trump’s threats of imposing substantial tariffs on Mexican products if certain migration and security demands were not met created uncertainty. The peso devalued, and the stock market adjusted as global investors reacted to these looming trade tensions.
However, Mexico’s relatively calm approach and fulfillment of specific demands, especially in security matters, have seemingly appeased the U.S. government, potentially ending the escalation of trade tariffs.
Government Discipline and Positive Developments
The Mexican government has demonstrated fiscal discipline through improved tax collection and significant budgetary cuts across various departments. Although there might be disagreements regarding spending priorities and distribution, the anticipated financial catastrophe has not materialized.
Key achievements include addressing debt obligations and improving Pemex’s prospects. The issuance of special bonds, sharing risk between Pemex and the government to buy back half of the debt maturing within four years, proved successful.
Credit rating agencies have acknowledged these positive developments. Moody’s upgraded Pemex’s debt rating from B3 to B1 with a stable outlook, while Standard & Poor’s reaffirmed Mexico’s global sovereign debt rating at BBB.
Key Questions and Answers
- Q: What factors contributed to Mexico’s improved financial outlook? A: The U.S. government’s relatively peaceful stance towards Mexico and the country’s fiscal discipline have played crucial roles.
- Q: How has the Mexican government managed its resources? A: By enhancing tax collection and implementing substantial budgetary cuts across departments, the government has demonstrated fiscal discipline.
- Q: What were the key developments in Mexico’s debt and energy sectors? A: The issuance of special bonds to address debt obligations and improve Pemex’s prospects have been noteworthy achievements.
- Q: How have credit rating agencies responded to Mexico’s financial progress? A: Moody’s upgraded Pemex’s debt rating, and Standard & Poor’s reaffirmed Mexico’s global sovereign debt rating, reflecting the positive developments.
Looking Ahead
While Mexico has made significant strides in its financial performance, addressing the issue of low growth remains. The projected average growth rate of 2.0% for 2026 appears optimistic, but it’s essential to remain cautiously hopeful.
Author Bio
Rodolfo Campuzano Meza is the General Director of INVEX Operadora de Fondos de Inversión.
