Key Economic Impacts of 2024 That Will Shape 2025
05:05 26/12/2024 - PesoMXN.com

The events of the last months of 2024 will continue to have effects in 2025. One of the most relevant was Donald Trump's election as president of the United States. Trump has warned that he will impose tariffs on goods coming from Mexico and Canada, which, according to the Mexican government, would have a huge impact on the automotive industry.
Trump's Proposed Tariffs In 2023, 83.4% of Mexican exports were directed to the United States; this percentage increased to 84.3% by August of this year, according to data from DataMéxico. Trump has mentioned that a 25% tariff will be applied to all Mexican products. The definitive percentage and the categories it will apply to are still unknown. Economists warn that Trump’s tariff plans could drive U.S. tariffs to levels unseen since the 1930s, stimulate inflation, negatively impact trade between the U.S. and China, result in retaliation, and significantly restructure supply chains. Volatility of the Peso on the Horizon The fluctuation of the Mexican peso against the dollar will remain present in 2025, just as it did in 2024, but this time influenced by other factors. With Trump's arrival at the White House on January 20, the exchange rate will be affected by geopolitical issues, the relationship between Mexico and the United States, and domestic fiscal policy, according to specialists. Projections for the exchange rate by the end of next year range from 19.50 to 21 pesos per dollar. The Ministry of Finance anticipates an average of 20.70 pesos, while Banxico estimates it will be 20.50 pesos. “Trump’s presence could create a volatility environment for the Mexican peso for at least the first three months. A complicated scenario is anticipated, with a floor of 20 pesos in the short term,” comments Humberto Calzada, Chief Economist at Rankia Latam. Uncertainty about Inflation In 2025, it’s unlikely that the Bank of Mexico will be able to bring inflation down to its target of 3%. The central bank itself has postponed the convergence of this goal to the third quarter of 2026, given the complicated geopolitical environment. The tariffs proposed by the new U.S. president are a factor that, according to Banxico’s Governing Board, will add uncertainty to inflation projections. “The implementation of tariffs on imports coming from Mexico has increased the uncertainty in our forecasts,” warned the Bank of Mexico. Complicated Fiscal Legacy It is expected that by the end of 2024, the gap between public spending and revenue will reach its highest level in relation to the Gross Domestic Product (GDP). By the end of September this year, the fiscal deficit, measured through the Financial Requirements of the Public Sector, increased by 45.6%, reaching 1.266 trillion pesos, the highest in history. This deficit was handed down to the new president, Claudia Sheinbaum, who took office on October 1, 2024. During the presentation of her administration's first Economic Package on November 15, the Ministry of Finance stated it expects this deficit to reach 5.9% of GDP by the end of 2024, with the goal of reducing it to 3.0% of GDP. However, those budget cuts and adjustments have cost her a negative outlook on her credit rating from Moody’s and HR Ratings, while S&P has confirmed its BBB+ rating with a stable outlook. By the end of 2025, it will be crucial to see if the Ministry of Finance achieves its objectives, which could influence the revision of Mexico's credit rating. The Mexican economy faces significant challenges in 2025, particularly due to potential tariffs from the United States and internal fiscal conditions. It will be essential for the government to implement effective strategies to foster growth and improve investor confidence; otherwise, we could see a worsening of the fiscal deficit and exchange rate instability that impacts both inflation and trade.