By: Gerardo Gutiérrez Candiani
Nexos has just published a "synthetic portrait" of the "real present and future of the Mexican economy" that Pedro Aspe Armella, the former Secretary of Finance, presented at a forum at MIT. He could not have chosen a more fitting title for what is concisely demonstrated there: "Mexico on the Road to Stagnation." I would add a subtitle: It is urgent to recognize it in order to correct the course.
I recover and break down that portrait due to its timely selection of indicators that hit the mark on what we are facing.
The macroeconomic diagnosis highlights a structurally high budget deficit due to an excessive increase in current spending, including what he calls a "second payroll": 29.4 million beneficiaries of cash transfers with no basis for financial sustainability.
The economy barely grows and there is no sign of a tax reform, but the amount of social programs has risen from 0.5 to 3 percent of GDP since 2018. Add to that the "black hole of Pemex": 400 billion pesos per year –1% of GDP– in subsidies and support, without reversing its technical bankruptcy and production decline. As an aggravating factor, the surge in spending has been made, in addition to debt, at the expense of productive public investment. Neglecting the muscles.
The exposition of the "unproductive increase in current spending" does not mean being against supporting people. It means more spending without financial return or capacity to produce economic value. In contrast, in the last two years federal physical investment remained 28% below 2023 – the largest annual drop in three decades – while spending on health, education, and security has been flat for 20 years.
All this compromises the sustainability and effectiveness of social support. Just as happens to a family with more expenses and debts, but without more income to pay.
Since 2018, four percentage points of GDP have been added to spending solely from support for Pemex and the population, but tax revenues barely grew 2.1. Moreover, today they barely exceed 18% of GDP, compared to the OECD average of 34% and Latin America's 22%.
Thus, the deficit, in its broad measure, reached 5.7% of GDP at the end of 2024, the highest in 36 years. Under the leadership of Secretary of Finance Edgar Amador Zamora it fell to 4.3% in 2025 and the aim is to close 2026 at 4.1%, but the legacy of the previous six-year term is a millstone. Analysts and international organizations are skeptical and do not rule out a rebound to 5 percent.
We are facing a clear downward spiral. A stagnant economy with high informality limits the capacity to increase tax revenues to sustain spending. At the same time, the collapse of public investment reinforces the decline in private investment –86% of the total–, worsening stagnation and the deficit. Added to this are "megaprojects" with negative returns, such as the Tren Maya and the Olmeca Refinery, and the massive cost of canceling the construction of the new capital airport with 30% progress, a turning point for investor confidence.
Debt can only rise: from 47% of GDP at the beginning of the previous six-year term to dangerously approaching the 60% threshold, something not seen in 50 years.
The threshold is not arbitrary: as the synthesis details, credit rating agencies have withdrawn sovereign grade from emerging economies that cross it, as in the case of Brazil, Colombia, and South Africa.
The effect would be a breaking point: higher interest rates and, consequently, more financial spending and economic slowdown. This is not a remote scenario: Moody's and Fitch have us on the last rung; S&P two above. All three see low growth as the key to deterioration and fiscal risk.
The economy grew at an annual average of less than 1% in seven years of the "4T" compared to 2.6% in the "neoliberal era." But as Aspe highlights, if GDP barely advances, per capita GDP has a negative balance, outlining a "lost decade." That indicates the impoverishment of a country, with less value produced per person, and becomes structural if the investment engine is left without power.
In April, physical investment grew 5.1% annually after 19 months of declines. But one swallow does not make a summer: indeed, it can be said that private sector investment, impacted by institutional uncertainty and low productivity, has been in a negative trend since 2019, excluding the rebound after the pandemic. There are no conditions for a recovery.
It is not only uncertainty over the USMCA that is holding back FDI: several internal factors affect both FDI and national investment (90% of the total). I agree with Aspe on the judicial reform and I add the reversal in energy and regulatory agencies, as well as the increase in costs that weigh on business productivity.
The extraordinary wage increases and new labor reforms have been a double-edged sword. Good for those who received the minimum wage in large companies; not for formal job creation and the majority of MSMEs, also hit by insecurity and extortion. It is no coincidence that the IMSS employer registry has been falling for 23 consecutive months year-on-year.
Formality has a direct relationship with the tax base and with productivity, the main determinant of growth, which has averaged an annual variation of -0.09% since 2010.
For now, the world grows three times more than we do and we have decoupled from the performance of the United States. Since NAFTA, in the 1990s, 2000s, and 2010s, there was synchrony, although we should have grown more due to the development gap and demographic dividend. The problem is that in this decade they are growing twice as much.
There, investment and productivity continue to have an impact, with catalysts such as artificial intelligence. Here we are falling back on both. It should not be surprising that, as the portrait notes, national capital seeks abroad what it does not find here.
A promise of development and social welfare hooked to increased current spending, without investment, productivity, and growth, is unsustainable. It ends up being regressive and can knock out public finances. It is urgent to correct the course: that "structural cascade toward stagnation."
ERRATA: Last week's article, "Long live the USMCA?", contains two inaccuracies regarding US tariffs on Mexican automotive exports.
- The commitment that auto parts will not be taxed under Section 232 does not include those already taxed, such as engines, transmissions, and advanced electrical components. It protects the rest of those tariffs and the entire sector against new tariffs, such as those under Section 301.
- The United States has proposed that 50% of vehicle value be American – an additional 10% – but the current 40% under the USMCA corresponds to that manufactured with wages of at least $16 per hour, which in practice benefits the United States and Canada. The new proposal is a different geographic rule of origin.
