The Bank of Mexico has revised down its economic growth projections for both 2024 and 2025, citing weaker-than-expected foreign manufacturing demand and persistent inflationary pressures. In its latest quarterly report, the central bank, often referred to as Banxico, revealed that the country’s gross domestic product (GDP) is now anticipated to grow by 1.5% in 2024, a significant reduction from the earlier forecast of 2.4%. For 2025, the forecast was also adjusted downward, from 1.5% to 1.2%.
The decision to cut growth forecasts comes in the wake of disappointing second-quarter growth figures, where Mexico’s GDP expanded by just 0.2% compared to the previous quarter. This sluggish performance has contributed to a broader slowdown trend that has been evident since late 2023. Banxico highlighted that external demand, particularly from the U.S. manufacturing sector, is expected to remain subdued, dampening Mexico’s economic prospects. Additionally, the central bank noted a decline in public infrastructure projects, which has further weighed on domestic construction activity.
Despite these challenges, Banxico Governor Victoria Rodriguez expressed cautious optimism, suggesting that the economy will continue to grow, albeit at a more moderate pace. She pointed to a potential recovery in U.S. manufacturing as a key factor that could support growth in the coming year.
Inflation remains a central concern for Banxico, which has raised its forecasts for both headline and core inflation. The bank now expects headline inflation to reach 4.4% by the fourth quarter of 2024, up from an earlier estimate of 4%. Core inflation, which excludes volatile items like food and energy, is projected to hit 3.9%, slightly higher than the previous forecast of 3.8%. The central bank cited anticipated price increases in produce and energy, along with stubbornly high services inflation, as the main drivers behind these upward revisions.
Banxico’s Deputy Governor Jonathan Heath emphasized the need to address the persistence of services inflation, noting that a clear downward trend in this area would be crucial to achieving the bank’s inflation target of 3%. While annual inflation has gradually eased to 5.16% as of mid-August, down from a two-decade high in 2022, it remains significantly above the target.
In light of the current inflationary environment, the central bank hinted at the possibility of further cuts to its benchmark interest rate. Earlier this month, Banxico reduced the rate by 25 basis points to 10.75% in a move that reflected a divided opinion among policymakers. The central bank acknowledged that inflation could still rise higher than previously anticipated, suggesting that future rate cuts would be contingent on developments in the inflation outlook.
This cautious approach by Banxico underscores the ongoing challenges faced by Mexico’s economy, as it navigates a complex landscape of external demand weaknesses and persistent inflation pressures. The central bank’s latest report, as highlighted by Reuters, underscores the delicate balancing act required to steer Latin America’s second-largest economy toward sustainable growth while keeping inflation in check.
