Background on Key Figures and Institutions
Ernesto Revilla, the Chief Economist for Latin America at Citi, and Carlos Capistrán, the Chief Economist for Mexico and Latin America at Bank of America, are two prominent economists who have recently shared their insights on Mexico’s economic outlook.
The Bank of Mexico (Banxico) is the central bank responsible for managing monetary policy and maintaining price stability in Mexico. Its inflation target is set at 3% with a tolerance of ±1 percentage point.
Inflation Projections for 2026
According to Revilla from Citi, inflation is expected to reach 4.2% in 2026, with the underlying inflation projected at 4.4%. Capistrán from Bank of America anticipates a similar outcome, with inflation ending at 4.1% and underlying inflation closing in at 4.3%.
Banxico’s Credibility and Inflation Forecasting
Both economists have expressed concerns about Banxico’s credibility and its inflation forecasting abilities. Revilla pointed out that the market no longer fully trusts Banxico’s inflation predictions, as the central bank tends to postpone the convergence of inflation towards the target.
Capistrán from Bank of America echoed these concerns, stating that the subjacent inflation has remained above 4% for over a year and is expected to stay elevated for an extended period. He attributes this pressure to factors such as the rise in the minimum wage surpassing productivity growth and the persistent upward pressure on service prices.
Economic Growth Projections
Revilla from Citi estimates that Mexico’s economy will grow by 1% in 2026, contrasting with the 0.2% growth projected for 2025. He emphasizes that domestic factors, such as low public investment, unprofitable public investment projects, and institutional deterioration, have contributed to the sluggish growth.
Capistrán from Bank of America concurs that the Mexican economy will continue to grow below its potential 2% pre-2018 level. He attributes this to factors like reduced private investment, low public investment returns, and diminished confidence due to institutional deterioration.
Key Factors Impacting the Mexican Economy
Both economists agree that the T-MEC trade agreement with the United States and Canada will likely persist. However, they foresee that the Mexican economy will continue to grow below its potential due to various domestic factors.
- Low Public Investment: Insufficient public investment has hampered economic growth.
- Unprofitable Public Investment Projects:
- Institutional Deterioration: Weakened institutions have eroded confidence in Mexico’s economy.
- Minimum Wage Increase: The rise in the minimum wage has outpaced productivity growth, adding pressure to service prices.
Many public investment projects lack profitability, further constraining growth.
Impact on Private Investment and Consumption
Revilla from Citi anticipates a moderate recovery in private investment following the contraction in productive capital flow. He believes that remittances will continue to support consumption, despite moderation due to low unemployment and ongoing social programs.
Key Questions and Answers
- What is the inflation target set by Banxico? The Bank of Mexico’s (Banxico) inflation target is 3% with a tolerance of ±1 percentage point.
- Why are economists concerned about Banxico’s credibility? Both Revilla from Citi and Capistrán from Bank of America have expressed concerns about Banxico’s ability to maintain stable inflation expectations and accurately forecast inflation.
- What factors are contributing to the slow economic growth in Mexico? Factors such as low public investment, unprofitable public investment projects, institutional deterioration, and the rise in minimum wage surpassing productivity growth are hindering Mexico’s economic growth.
