Sheinbaum Administration Navigates Significant Economic Headwinds in Second Year

Economic Landscape Presents Challenges for Sheinbaum

As President Claudia Sheinbaum enters her second year in office, Mexico's economic landscape is marked by significant challenges, including varied forecasts for Gross Domestic Product (GDP) growth, a substantial fiscal deficit, and ongoing issues with major state-owned companies. The administration is tasked with implementing policies to foster stability and growth while managing these complex economic factors.

Economic projections for Mexico's GDP growth in 2025 and 2026 show a range of outlooks. While the International Monetary Fund (IMF) revised its 2025 forecast from a 0.3% contraction to a 0.2% growth, maintaining a 1.4% projection for 2026, other organizations present a more cautious view. Americas Quarterly predicts a modest 0.5% growth in 2025 and 1.3% in 2026, indicating a fourth consecutive year of deceleration. The Organisation for Economic Co-operation and Development (OECD), in a more pessimistic assessment, forecasted a 1.3% decline in 2025 and a 0.6% decline in 2026, attributing this partly to potential U.S. tariffs on Mexican goods. President Sheinbaum has expressed optimism, stating that her government's economic models do not align with the more negative predictions.

Fiscal Deficit Requires Aggressive Consolidation

A primary concern for the Sheinbaum administration is the elevated fiscal deficit. Mexico's budgetary deficit reached a 36-year high of 5.7% of GDP in 2024, largely due to increased government spending during the election year. President Sheinbaum has committed to aggressive fiscal consolidation, initially targeting a reduction to 3.9% of GDP by 2025, and later stating an objective of a maximum of 3.5% of GDP for the same year. However, the Finance Ministry's latest projections indicate a deficit of 4.4% for 2025 and 4.1% for 2026, suggesting a slower path to the long-term target of 2.5%.

To address this, the government plans to implement measures such as stronger revenue collection through customs reform and combating tax evasion, particularly 'false invoicing.' The President has ruled out the creation of new taxes for 2026, emphasizing responsible spending and debt renegotiation to ease financial pressures.

State-Owned Companies Undergo Reclassification

The financial health and operational efficiency of Mexico's state-owned companies, particularly Petróleos Mexicanos (PEMEX) and the Federal Electricity Commission (CFE), remain a critical area of focus. PEMEX is projected to require significant taxpayer support, with allocations expected to reach $14 billion in 2026. CFE also faces substantial financial liabilities and operational inefficiencies, having received $23.5 billion in government transfers between 2019 and 2024.

In a move to strengthen these entities, President Sheinbaum signed secondary laws on October 30, 2024, reclassifying PEMEX and CFE from 'state productive companies' to 'public companies.' This change mandates that these companies prioritize the government's social and economic objectives over corporate profits, reversing previous neoliberal policies. The reforms also ensure that CFE maintains at least 54% of electricity production. Additionally, the administration has declared energy efficiency a national priority, implementing new norms and leading efforts to reduce consumption across public institutions and state-owned companies.

Broader Economic Policies and Outlook

Beyond these immediate challenges, the Sheinbaum administration is pursuing a broader economic agenda. This includes a planned 13% increase in the minimum wage for 2026, aiming for the minimum wage to cover 2.5 'basic baskets' by 2030. A gradual reduction of the workweek from 48 to 40 hours by 2030 is also underway, with the first two-hour reduction slated for 2027. Social programs are guaranteed and expanded, including new pensions and scholarships. While public investment is expected to be lower in 2025 compared to subsequent years, the administration's 'Plan Mexico' aims to attract $277 billion in investment and create 1.5 million jobs annually. The government is also defending a judicial overhaul that has caused market apprehension.