Economics: 2025 Year-end public finance figures signal risks for 2026 and beyond
The full-year 2025 figures show a fiscal deficit exceeding the official target by MXN $285 billion, closing at MXN $1.7 trillion, which is equivalent to 4.8% of GDP, down from 5.9% of GDP in 2024. This imbalance means the public sector as a whole increased its financial obligations by a non-trivial amount. The balance of domestically-denominated public debt rose by 9% in real terms, while the corresponding foreign-currency (US dollar) debt increased by 6.8% in real terms. The growth of public sector liabilities is at a level clearly above the increase in 2025 GDP (0.5%) and total revenues (2.5%), implying a weakening in the government's capacity to meet its financial obligations.
To achieve fiscal stabilization, the core objectives of the Ministry of Finance (SHCP) for 2026 are: to reduce the fiscal deficit (PSBR) by 0.7% of GDP (to 4.1% of GDP) and generate a primary surplus of 0.5% of GDP (compared to the 0.1% deficit in 2025), primarily through a reduction in total public expenditure of -0.9% of GDP. This would imply an expenditure adjustment over 4 times larger than that observed in 2025, which is unfeasible. Our Economic Outlook report for this week analyzes the 2025 year-end public finance figures and their prospects and risks for 2026.
Regarding last week's indicators, it was announced that Banxico decided to pause its interest rate cuts and kept the rate at 7%. It updated its forecasts for headline and core inflation to reach 3% in the second quarter of 2027, compared to the previous forecast, in which both would have been achieved in the third quarter of 2026. According to Banxico, core inflation should fall to an average of 3.6% in the third quarter of this year, which seems unlikely due to the effect of tariffs on China and tax increases on beverages and other products. If Banxico remains consistent with its core inflation forecasts, it is very likely that the interest rate pause will last throughout the first half of the year.
In other economic news, it was reported that private consumption grew by 2.8% YoY (seasonally adjusted) in November, maintaining the recovery trend that began in October after a decline was recorded in September. However, this recovery is concentrated in a significant increase in the consumption of imported goods.
Gross fixed investment for November was also published. It continued to show a significant contraction (-5.7% YoY), with no sign that this component of aggregate demand has bottomed out.
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