Mexico: Draft budget is a perilous balancing act

3 min
Georges Dib
Georges Dib Economist for Latin America, Spain and Portugal

We draw two lessons from the draft 2020 budget presentation by the government. First, it sticks to fiscal discipline on paper, as it aims at a primary fiscal surplus of +0.7% of GDP, after a target of +1% this year. While slightly boosting spending, it stays right on course, sending a pro-business signal. However, macroeconomic assumptions are too optimistic, as the GDP growth forecast for 2020 ranges between +1.5% and +2.5%. We expect sluggish growth of +1% next year (after +0.4% this year). The fiscal target is hence too ambitious. Second, it illustrates the difficult equilibrium many emerging countries struggle to maintain: the urge to resort to fiscal stimulus as global growth is cooling (and particularly the U.S., Mexico’s main trade partner) without the necessary fiscal space and under market scrutiny. In a nutshell, the budget should not be sufficient to fully reassure investors, nor to revitalize a sluggish economy that is caught between domestic political risk and U.S. President Trump's tweets.