The World Bank has lowered its economic growth forecasts for Mexico for this year and the next two, citing uncertainty for investors among the reasons for its more pessimistic outlook.
The Washington D.C.-based financial institution is now predicting that the Mexican economy will grow 1.7% this year, 0.6 percentage points lower than its 2.3% forecast in June.
The World Bank anticipates GDP in Mexico will increase 1.5% in 2025, 0.6 points lower than its previous 2.1% forecast.
It also cut its forecast for 2026, lowering it to 1.6% from 2%.
The updated growth forecasts are included in the World Bank’s latest Latin America and Caribbean report, which was published on Wednesday.
If the projections come true, economic growth in Mexico will slow for a third consecutive year in 2024 and a fourth consecutive year in 2025.
The Mexican economy grew 6% in 2021 as it bounced back from a sharp pandemic-induced contraction in 2020. Growth moderated to 3.7% in 2022 before declining to 3.2% last year.
In the first half of 2024, annual growth was just 1.5%.
Why did the World Bank cut its growth forecasts for Mexico?
William Maloney, World Bank Chief Economist for Latin America and the Caribbean, told a virtual press conference that high interest rates in Mexico, a weaker Mexican peso and uncertainty for investors were all factors in the lower growth forecasts.
The Bank of Mexico has cut its benchmark interest rate on three occasions this year, but it remains high at 10.50%.
The Mexican peso has weakened considerably since the June 2 elections, in large part due to concerns over the federal government’s judicial reform, which was signed into law by former president Andrés Manuel López Obrador two weeks before he left office.
The Wall Street Journal reported last month that foreign companies were holding back approximately US $35 billion in investment in Mexico due to uncertainty related to the judicial reform and the upcoming United States election. There are concerns that respect for the rule of law in Mexico will suffer as the result of the direct election of judges by citizens.
Maloney on Tuesday stressed the need for Mexico to create stability for investors by respecting the “rules of the game” for investment in the country.
He acknowledged that Mexico has made progress in combating poverty — including by increasing the minimum wage — but highlighted that more needs to be done. Maloney also said that advances in infrastructure (including water and energy infrastructure), innovation and education are crucial to Mexico’s future success.
In addition, the World Bank economist said that Mexico is well positioned to benefit from nearshoring, but added that the country needs to do more to attract foreign investment.
What does the World Bank report say about Mexico?
Entitled “Taxing Wealth for Equity and Growth,” the World Bank’s latest Latin America and Caribbean report also includes updated growth forecasts for other countries in the region, and the region as a whole.
The World Bank is forecasting that the regional economy will grow 1.9% this year and 2.6% in 2025.
Early in the 98-page report, the World Bank acknowledges that Mexico has “increased its level of private investment, by taking advantage of opportunities for nearshoring and friendshoring, and public investment, especially on infrastructure projects.”
Later in the report, the bank says that “Mexico’s policy of increasing the minimum wage from the previously low level” — it almost tripled during López Obrador’s presidency — “appears to have had some positive effects on earnings, and reducing poverty.”
“Yet, the economic literature and the region’s experience clearly suggests that there are limits to this strategy. The initial positive effects in Mexico may be related to the fact that minimum wages started off at very low levels relative to median or average wages, and further increases may have important employment trade-offs to consider,” it adds.
Toward the end of the report, the World Bank highlights that Mexico has the second highest number of billionaires among Latin America countries after Brazil. Mexico’s richest person is Carlos Slim, who, according to Forbes, is the 20th wealthiest person in the world.
“While rich,” Latin America’s billionaires are “modest” by global standards, according to the World Bank, which highlights that “the combined wealth of the top ten billionaires worldwide — nine of whom reside in the United States — totals an astounding [US] $1.7 trillion, nearly equal to Brazil’s GDP, and almost triple that of Argentina.”
With reports from El Economista, EFE, El Universal and El Financiero
BS. Mexico trade with the USA is at all time high but nevertheless these POS are trying to cool off the trade to prevent a booming economy for Mexico. Why? They want to have their cake and eat it. Mexico has become an well oiled machine since AMLO became president 6 years ago. Now Claudia Sheinbaum, first female President, is on track to follow the same policies of taking care of their citizens which is anatema to the USA. Bad press is their MO with Latin America but IT IS NOT WORKING. Any press from the so-called World Bank is tainted with self-interest. SHAME ON THEM.
Sadly misinformed – World Bank is INDEPENDENT and as a matter of fact made unwelcome recommendations to USA among other nations. AMLO has essentially frightened off international investors (35 US bn on hold)
An elected judiciary from a panel selected by the party in govt will simply lead to egregious corruption and may in fact encourage capital flight
Given the “gentrification” narrative i’m a bit concerned about purchasing now given that expropriation can be voted for even if it leads to mass capital flight. Judges self interest in being re-elected becomes more important than the law or whats in the best interest of the nation.
Have to agree with you. The ‘Washington Consensus’ gang wants a cheap and easily malleable place to build the crap their guys will market to the US consumer. Of course Mexico is going to prosper as a result of this American off-loading of responsible manufacturing to a country with weak or non-existent labour, environmental and social regulations. Of course as Mexico receives more FDI it’s economy will grow and grow towards higher value production by more highly educated labour. Of course as Mexicans become more educated and wealthier their politics will be more liberal. It’s a dance the super rich, so called capitalist class know and fear all too well.
It happened in China, then the surrounding East Asian economies. They have their share of millionaires and billionaires now and a big slice of the population is decidedly middle class; they all want some of that sweet, sweet social benefits. Mexico has the most millionaires in Latin America, has just passed another law ensuring minimum wages will outpace inflation and is committed to educating its citizens.
Adam Smith and Ricardo both described this arc. It’s how America started. And it’s happening around the world. That thin slice of super-rich, greedy and belligerent so-called capitalist are always looking for cheaper, more malleable labour but they know abject poverty doesn’t work for them. So they always create the conditions that erodes their fantasy of absolute power and control.
It has never occured to that class of people, seemingly, that a better world for all means, by definition, a better world for them too.
Your take is a good one. I agree with you 100%. Mexico is not going to shoot itself in the foot with foreign investment.
As far as a weaker peso is concerned, that’s a good thing, because nearshoring companies want to pay workers at 20 pesos and not at 15 or 16. Also Mexican interest rates have come down a little.
Regarding the judicial reforms.. Those judges led by Norma Piña we’re so corrupt.
The problem with the Mexican rolling glass is they’ve been in power for hundreds of years and just don’t want to give it up.
Are you aware the U.S. has a trade deficit with Mexico of 152 billion per year, not including the illegal deficit with the cartes that probably exceeds 20 billion per year?
Mexico could reduce a lot of the tension here just by reciprocating U.S. policies for things like personal cars and property, clothing and electronics.
THE WORLD BANK IS JEALOUS OF THE GAINS IN BILLIONS DONE BY MEXICO FOR THE PAST YEARS AND TRUMP IF ELECTED WILL TAX CAR BUILT IN MEXICO BY CHINA FACTORY 20%,,dO NOT STOP MEXICO ,, BRAVO BUCERIAS FRIEND FROM QUÉBEC. TRUDEAU MINISTER WILL FOLLOW WITH THE 20% TAX ON CHINA CAR, HOPE HE IS OUT SOON.
People here are certainly triggered by a basic report and outlook for the Mexican economy. Those who don’t like the news attack the messenger and rant about conspiracies. Helpful to read the actual report, which is how to promote greater equality and growth by creating greater fiscal space for investment in infrastructure and human development through taxing the wealth of billionaires the World Bank is accused of coddling.
The World Bank is one of the treasures mined out of WWII, along with the UN, IMF, and Interpol. Sure, they are all imperfect, but they do really important work. Kudos for them for trying to tell the truth.
Sheinbaum has a tiger by the tail with the constitutional changes that AMLO’s team put in place. Now it is up to her to manage the process and the fallout. This is going to be fascinating. But one bets against Mexico, like the US, at one’s peril. They have both strong constitutions, very similar to each other (the young revolutionary lawyers who wrote the Mexican constitution just replicated those things that were working north of the border). After a century of almost continual upheaval, the Mexican Constitution, now just over 100 years old, has maintained stability even as the leaders have sometimes stumbled.
If Sheinbaum is as smart as I think, she will use the report to stimulate policy conversations. If she is not, she will rail against it. We will soon see.