The first quarter of the year has ended. We will have to wait quite a while before we have adequate information to properly assess what happened, but what we do have suggests that the economy remains stagnant. Considering that the end of 2025 showed somewhat surprising momentum, I think the first three months of this year will disappoint.
Imports of non-oil consumer goods and capital goods—which are the best proxy for domestic demand—were growing at nearly 6% in the last quarter of last year. In January, they did not reach 4%, and in February they barely grew at all. This seems to explain the drop in VAT and import tax revenues, which we also already have data for through February. While in the first two months of 2025 VAT grew by 20% in real terms and import taxes by nearly 50%, this year they show declines of 9% and 7%, respectively.
High-frequency data from BBVA (card usage) is consistent with this trend. In November, they reported real growth of nearly 9%, which fell to 5% in December, 3% in January, -1% in February, and -2.5% through March 24. For some reason, this information does not align well with consumption as measured by INEGI, nor with retail sales performance. However, the preliminary indicator for the former already points to a decline in February, and as for retail, I have already noted that its results are heavily skewed by fuel sales. I do not know whether this reflects a reduction in fuel theft or simply creative accounting by Pemex—someday we will find out.
Lower economic activity affects revenue not only in the taxes mentioned, but also in income tax, whose growth was modest in the first two months of the year, compounded by a drop in oil revenues. In real terms, total government revenues show slight growth (2%), which has forced spending growth to be limited to roughly the same level. As is customary, this is achieved by cutting public investment, which shows a decline of nearly 40% compared to the first two months of 2025. In real terms, public investment is repeating the pattern seen at the beginning of 2025, when it was used to “consolidate” public finances. Since private investment is not moving much, this led to the economic contraction seen in the middle two quarters of last year.
The war in Iran may slightly increase oil revenues due to higher crude prices, but it will reduce revenue from the special tax on fuels, since the government has decided not to allow increases in gasoline and diesel prices. We will see the net impact, but it will most likely be negative, because we consume more fuel than the oil we produce. This will force further cuts in investment, leading to a decline in the economy, which in turn will reduce revenue—and so the cycle will continue.
Estimating economic performance based on the aforementioned imports, we can expect growth in this first quarter to be similar to last year’s figure, around half a percentage point. I had long suggested thinking in terms of growth of that magnitude after the fiscal hole created by the 2024 election. It should not be surprising, considering how investor confidence has been undermined and the state of public finances. At that pace, infrastructure deterioration will continue to advance. Reversing this process, under the current government, I believe is impossible.