Taking the temperature

El Financiero, February 17th, 2025

I occasionally receive complaints because, as they tell me, this column has stated for more than six years that the Mexican economy is in a clear decline. At the same time, both presidential popularity and consumer confidence are at record levels. Those who complain believe that these two pieces of data are incompatible, and therefore, my criticism of the economy must be unfounded or mistaken.

It's like the frogs in the water, who do not perceive any danger as it heats up, until they are boiled to death. The deterioration has been considerable, but it has occurred at such a slow pace that it is not perceived by many. The exchange the government has offered, removing rights in exchange for cash, helps obscure the process.

In the last six years, we have suffered one of the largest declines in living standards, comparable to those that occurred in the major recessions of 2001-2003 and 2009. But in those instances, the decline was much faster. In the first case, it took three years, and it was offset by a large increase in real wages, due to efforts by the IMSS (Mexican Social Security Institute). In the second case, the decline was much quicker, happening in just one year, and the efforts to compensate were smaller. Now, it has taken more than six years with the exchange I mentioned.

If we compare the performance of our economy with that of the United States, which has been Mexico's economic engine for several decades, things look different. Since the two mentioned recessions came from there, and were not our fault, during Vicente Fox's administration we lost nearly 5% (due to the recession and China's entry into the WTO), but we recovered half of that during Felipe Calderón's administration. On average, from 1995 to 2018, the economies of both countries grew at the same pace.

The cancellation of the airport changed the relationship. From that moment on, a nearly continuous decline began that placed us, last December, 10% below the level we had, and should still have. In other words, Mexicans lost 10% of their wealth during the last administration and the start of this one. And they are happy to live in warmer water.

Thanks to many having more money in their hands, consumption has grown a bit. However, almost all of this growth occurs with imported goods, while the consumption of national goods is 25% lower than it was before 2018, and services consumption is barely half of what it was.

In terms of investment, comparing monthly or annual flows may make it seem like we are progressing, but it overlooks the massive hole created by the lockdown. When you take that drop into account, which has been partially compensated for in recent years, we are still 25% below the level we had in 2018. And I am not considering the severe embezzlement that the previous government's grand projects represented, with very high costs and no return on investment. Worse still, with operating losses.

It's not that this column is catastrophist, or that only the negative side is reflected here. It's that taking the temperature of the water, that is, carefully reviewing the information, does not allow for different conclusions. If last year, with a fiscal deficit of 2.6 trillion pesos (which increased the historical balance of financial requirements, equivalent to 7.5% of GDP), the economy barely grew by 1%, investment only grew in vehicle acquisitions, and consumption closed the year at 1% as well, I don’t think there’s any doubt about it.

Little bubbles are starting to appear.