Key Points from the IMF’s Recent Visit to Mexico
According to the International Monetary Fund (IMF) experts, Mexico’s economy is expected to regain its long-term growth rate of over 2% by 2027, once trade uncertainties subside and the results of the T-MEC trade agreement review are known.
Current Economic Outlook
- The IMF projects a “weak” 1% GDP growth for Mexico this year, affected by monetary and fiscal restrictions aiding inflation control and fiscal consolidation.
- For the following year, they anticipate a 1.5% GDP growth rate, with a slight acceleration due to relaxed domestic policies, although tariffs and trade uncertainty will still limit growth.
Factors Limiting Growth
The IMF experts highlighted three key factors moderating domestic consumption and investment:
- Uncertainty surrounding tariffs
- The commencement of the T-MEC trade agreement review
Fiscal Consolidation and Tax Reforms
The IMF emphasized the need for Mexico to implement a more ambitious fiscal consolidation strategy, which should include fundamental changes in its tax system.
- The current plan allows public debt to gradually increase, reaching 61.5% of GDP by 2030, posing risks such as vulnerability to adverse shocks and potential deviations.
- A fiscal space creation is suggested to grant the government flexibility for countercyclical responses if external risks materialize.
- Concrete measures around 1.5% of GDP are required to support this consolidation, such as reducing tax compliance deficiencies, increasing the progressivity of the Individual Income Tax (ISR) for physical persons, gradually raising carbon taxes including natural gas, and eliminating border incentives.
Strengthening Trade’s Impact on Mexico’s Economy
The IMF experts proposed a comprehensive strategy to deepen trade’s impact on Mexico’s economy, comprising four elements:
- Resolving trade tensions, particularly with the United States
- Strengthening commercial integration
- Avoiding trade distortions
- Diversifying commercial partnerships
Addressing Trade Tensions and Integration
Regarding trade tensions with the United States, the IMF experts expect investor confidence to stabilize and supply chain continuity to be maintained.
To strengthen commercial integration, they recommend leveraging the T-MEC review to deepen integration with the United States, aiming to maximize regional trade benefits and minimize potential negative repercussions.
The experts cautioned against trade-distorting policies, such as specific import tariffs for recently introduced products, which they believe would likely harm the national economy.
Diversifying Commercial Partnerships
Lastly, the IMF experts recommended promoting diversification of Mexico’s commercial partners, including capitalizing on the updated EU-Mexico trade agreement and expanding trade with regional partners like Brazil.
Key Questions and Answers
- Q: When will Mexico’s GDP growth recover above 2%? A: The IMF projects Mexico’s long-term growth rate to recover above 2% by 2027, once trade uncertainties subside and the T-MEC review results are known.
- Q: What factors are limiting Mexico’s growth? A: Key factors include uncertainty surrounding tariffs and the T-MEC review, as well as monetary and fiscal restrictions affecting current GDP growth.
- Q: What does the IMF suggest for fiscal consolidation in Mexico? A: The IMF recommends a more ambitious fiscal consolidation strategy, including fundamental tax system changes and creating fiscal space for countercyclical responses.
- Q: How can Mexico deepen trade’s impact on its economy? A: The IMF proposes a comprehensive strategy involving resolving trade tensions, strengthening commercial integration, avoiding trade distortions, and diversifying commercial partnerships.
- Q: What are the IMF’s recommendations for Mexico’s trade policies? A: The IMF advises against trade-distorting policies like specific import tariffs for recently introduced products and promotes diversifying commercial partnerships, including capitalizing on the EU-Mexico trade agreement and expanding trade with regional partners like Brazil.
