BBVA Mexico Revisits Growth Projection Upwards
BBVA Mexico has increased its growth forecast for the Mexican economy in 2025 from 0.4% to 0.7%, attributing this upward revision to the favorable performance of economic activity during the first half of 2023. However, the financial group maintains its expectation of a slowdown in the second half of 2025.
Positive Impulse from Export Orders, but Transitory
The advance in export orders during the first half of 2025 provided a positive boost to growth, but evidence suggests this effect was temporary. The moderation in job creation, particularly in the industrial sector, implies that private consumption is likely to decelerate in the second half of 2025, amidst a context of diminishing investment dynamism.
Employment and Wage Growth Projections
BBVA Mexico anticipates continued weakness in job creation and wage growth, with formal employment growing by 0.8% in 2025 and 1.7% in 2026. This could further impact consumption dynamics.
Inflation projections for 2025 stand at 3.8% for general inflation and 4.1% for underlying inflation, noting that the surge in inflation during the second quarter has started to reverse in the third quarter.
Currently, general inflation in Mexico is at 3.74%, and underlying inflation is at 4.26%, according to the latest data from the National Institute of Statistics and Geography (Inegi).
Monetary Policy Normalization
BBVA Mexico reiterates that the Bank of Mexico still has room to continue normalizing its monetary policy in a context of weak domestic demand, maintaining the forecast that the reference rate will be 7% at the end of 2025 and 6.50% in 2026.
The current reference rate is 7.75%, and it is expected that the bank’s governing board will cut it by 25 basis points on Thursday, leaving it at 7.5%.
“Long-term rates still have room to fall, supported by the Banxico cycle and corrections in country risk premiums,” according to BBVA Research Mexico.
Mexican Peso Depreciation Anticipated
BBVA Mexico predicts a slight depreciation of the Mexican peso in the coming months due to the likely narrowing differential between Mexico’s and the US interest rates and the national economic slowdown.
The bank forecasts that the exchange rate will close 2025 at 19.40 pesos per dollar and 2026 at 19.80 pesos per dollar, up from the current level of 18.43 pesos.
Slow Progress in Fiscal Consolidation
Regarding public finances, BBVA Mexico projects that the historical requirements for financial requirements of the public sector (SHRFSP), a broad measure of public debt, will be 52.3% of the national GDP by the end of this year and 51.4% next year.
Although the proposed fiscal consolidation for 2026 is only two decimal points less than the previous year’s 4.3% of GDP, the pressure from public spending and shrinking fiscal space for cuts suggests that this consolidation will continue at a slow pace.
- Factors Impacting Fiscal Discipline: Factors such as increased social programs, support for Pemex, pensions, debt, and limited revenue growth without fiscal reform pose challenges to maintaining a disciplined fiscal stance.
- To avoid an upward trajectory in public debt (as a percentage of GDP), which would present a complex fiscal policy challenge, the federal government will likely need to make adjustments to programmable spending to generate public deficits around 2.0% of GDP.
- Insufficient fiscal discipline could lead to public debt approaching 58.1% of GDP in 2030, jeopardizing Mexico’s sovereign credit rating and investment grade.
