Mexico City, December 12, 2024 – Despite the ongoing challenges facing Mexico’s economy, the country’s central bank (Banxico) has reassured markets of the financial system’s resilience and stability, highlighting robust liquidity and capital levels. The Bank of Mexico’s latest biannual financial stability report stressed that the banking system remains “solid and resilient” despite the “notable weakness” of Latin America’s second-largest economy.
In the face of market volatility, both domestically and abroad, Banxico underscored that the financial institutions are well-positioned to weather potential shocks. The report noted that liquidity and capital reserves remain well above regulatory requirements, providing a stable foundation for the system.
Economic Volatility Amid External Risks
Mexico has faced significant economic turbulence in the second half of 2024, with key factors contributing to market fluctuations. The country is navigating political uncertainties tied to domestic constitutional changes, as well as external risks, particularly trade tensions with the United States, its largest trading partner. The recent election of Donald Trump as U.S. president-elect, with his threat of a 25% tariff on Mexican imports, has further heightened concerns.
Despite these external challenges, the report found that Mexican markets have generally behaved in a “relatively orderly” manner, with no signs of major disruptions. The central bank acknowledged, however, that “unexpected or severe shocks” could still threaten the financial system’s functioning, especially in light of geopolitical tensions and the risks posed by potential trade conflicts.
Forecasting Modest Economic Growth
Banxico also revised its economic growth forecasts, projecting a modest expansion of just 1.8% for 2024 and 1.2% for 2025. This comes as Mexico grapples with low domestic demand and uncertainty surrounding its future role in the global economy. While the country continues to benefit from “nearshoring,” the relocation of manufacturing from Asia to Mexico due to its proximity to the U.S. market, there is growing concern about the long-term effects of Trump’s tariff threats on this trend.
Despite these uncertainties, Banxico Governor Victoria Rodriguez expressed confidence in Mexico’s ongoing economic integration with the U.S., noting that the relocation of businesses has supported bank credit growth. She also emphasized that the process of nearshoring is gradual and expected to continue over the coming years.
“This relocation phenomenon is underway, and it is gradually boosting credit activity within the banking system,” Rodriguez stated. “The investments required for these shifts take time to materialize, but we expect this trend to continue throughout 2024 and beyond.”
Outlook and Risks
The central bank’s report concluded that, while the risks to financial stability are currently deemed limited, the possibility of adverse economic and geopolitical events could still pose challenges. Banxico remains vigilant about the potential for trade conflicts or an exacerbation of Mexico’s economic slowdown. However, the bank’s assessment underscores the strength and adaptability of Mexico’s financial system in navigating these uncertain times.
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