Economics: First quarter public finances surprisingly favorable yet unsustainable for the rest of the year, with scant room to contain spending

MEXICO - Report 13 May 2025 by Mauricio González and Francisco González

Mexico's public finances delivered favorable results in the first quarter of 2025, driven by a substantial increase in non-oil tax revenues (real annual +17.8%) and a contraction in public spending (real annual -5.9%), a performance facilitated by calendar effects. But despite such a positive showing, public debt increased a real 8.4% yoy in the domestic currency component and 4.8% in the external component.

Recent results show that revenue sustainability and expenditure containment face risks due to the economic slowdown, lower oil revenues and non-programmable expenditure pressures. In this context, it is very likely that Public Sector Borrowing Requirements will exceed this year's target of 3.9% of GDP, instead reaching between 4.5% and 4.8%.

Pemex recorded a financial and operating deterioration in January-March 2025. Hydrocarbon production fell significantly: liquids -11.3%, gas -8.7% and crude exports -22.8%. Financially, Pemex reported a net loss of 43.3 billion pesos (vs. a profit of 4.7 billion pesos for the same quarter of 2024), driven by its industrial transformation division (-79.5 billion). Government support has not reversed a record of 26 quarters of net losses among the last 29.

This week’s Outlook analyzes the performance of public finances and Pemex as of the first quarter of 2025.

Regarding the week's indicators, it was announced that consumer inflation increased 3.93% yoy in April vs. 3.8% in March. Of particular concern is that the increase was due to the core component, which reached 3.93%, up from 3.64% in the previous month. It was also reported that private consumption fell -0.7% yoy in February 2025, the third consecutive drop. Likewise, gross fixed investment (GFI) contracted by -6.0% yoy in the second month of this year, continuing the negative trend that began in the second half of the previous year and thus accumulating six consecutive months of declines.

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