Economics: Poor Q1 public finance figures; Pemex remains a persistent burden
In the first quarter of 2026, public finances deteriorated, casting serious doubt on whether a genuine "fiscal consolidation" process is actually underway this year — that is, whether a meaningful reduction in fiscal deficits, and in particular in the Broad Public Sector Borrowing Requirements (PSBR), will be achieved. Over the period, public revenues declined and expenditure continued to expand, compressing the primary balance, although the PSBR remained at a level broadly similar in nominal terms to the same period of 2025.
The expansion of current spending was partially offset by a sharp cut in public investment. While the Ministry of Finance (SHCP) stated that this situation would be corrected in the coming months — characterizing it as a "rescheduling of investment" — such a correction will be difficult to achieve without allowing fiscal balances to deteriorate further.
Meanwhile, Pemex stabilized hydrocarbon production during the same period but proved unable to increase it; refining output continued its gradual volumetric improvement, albeit at a high cost; and both crude oil exports and gasoline and diesel imports declined. Pemex's poor financial position persisted throughout the period, with losses equivalent in magnitude to the transfers it received from the federal government.
Regarding last week's indicators, gross fixed investment (GFI) fell -3.6% YoY in February 2026, marking eighteen consecutive months of contraction, with the cumulative decline for the first two months of the year averaging -3.7% annually. Private consumption, meanwhile, grew 0.9% YoY in seasonally adjusted terms in February, averaging 1.2% growth over the first two months of the year — a deceleration following the strong growth rates recorded in the final quarter of 2025.
Also last week, Banco de México announced a 25-basis point rate cut, bringing the benchmark rate to 6.50%, in a divided decision of three votes in favor and two against, and signaled the end of the easing cycle. The central bank's arguments are at odds with this decision, as they provide no evidence that inflation is coming under control: while core inflation declined from 4.46% to 4.26% between March and April, it remains above 4%; year-end 2026 inflation expectations have risen; and medium-term expectations remain stable but above the target. This cut brings the interest rate differential between the Fed and Banco de México to a historical low of 290 basis points — the narrowest since this monetary policy rate mechanism was introduced in Mexico in 2008. The move is imprudent given that macroeconomic risks, particularly the weakness of public finances, are tilted to the upside, and could discourage foreign financial investment.
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