The publication of aggregate supply and demand data last week allows us to confirm two hypotheses. First, that the full power of the State was used to win the 2024 election, leaving the country on the brink of disaster. Second, that the best trend scenario we currently face is stagnation.
I can’t provide all the details here (which you can find in the subscription services at macario.substack.com or www.patreon.com/macariomx), but I can offer you a general overview of the situation. The cancellation of the airport construction caused a drop in investment that, during the course of 2019, turned into a recession. We didn’t fully see it because the pandemic arrived “like a ring to the finger” (a perfect excuse). That’s why I call the period from October 2018 to two years later the “López-COVID Recession.”
During the lockdown, unlike what governments around the world did, there was no support program for businesses or families here. If anything, they used external credit to distribute money with no accountability—naturally, to those close to them. For that reason, by the end of 2021, the Mexican economy was 3% smaller than it had been before the airport cancellation. Then came a second push, which led to modest growth by the end of 2022. On average, from the airport cancellation to that moment, annual growth was 0.4%. Presidential approval was at its lowest point of the term.
Everything changed in 2023. Suddenly, we saw a significant increase in both consumption and investment, which inevitably led to a similar effect on the trade deficit, pushing it to historic levels. There wasn’t a bigger issue because remittances were enough to finance it, and high interest rates kept the peso strong. That growth, financed by a sharp increase in public debt, turned into a bubble—peaking in early 2024 for investment, and precisely at election time for consumption.
Since then, both bubbles have deflated. They were no longer necessary—the goal, winning the election, had been achieved. Investment collapsed, shrinking by nearly 7% in the first quarter of this year, while consumption dropped by 1%. Naturally, imports also declined, and thanks to that, first-quarter GDP data showed a slight increase—but it’s a statistical illusion.
However, the increase in debt that financed those bubbles is still there. And even though the Bank of Mexico is lowering the benchmark interest rate as much as it can, the financial cost has taken on a life of its own. The government has no money, its debt is approaching the maximum level acceptable to credit rating agencies, and PEMEX has become a ticking time bomb. It reportedly owes suppliers about $20 billion—but in reality, that debt is double that amount.
The bubbles were so large that simply returning to normal levels during this administration will require enduring near-total stagnation. Given global uncertainty and internal institutional destruction, the decline in investment could be even greater. Something similar would happen if remittance flows drop. A disruptive event (I don’t know if what’s happening with Iran qualifies) could trigger a severe crisis.
My estimate—optimistic, as it excludes the kinds of events mentioned in the previous paragraph—is that over Morena’s twelve years in power, average annual growth will not reach half a percentage point. As of now, we’re just below 0.8% annually. By 2030, an annual average of 0.2% is, I stress, the optimistic scenario. They wanted to change the model, they say. They succeeded.