Economic evaluation of Mexico by BBVA México and challenges of the next government

Eduardo Osunageneral director of BBVA Mexicospoke with Advertising meter prior to the 87 Banking Convention which takes place this April 18 and 19 in Acapulco, Guerrero, and among the topics it addresses, the urgency of reducing the public deficit to maintain the economic stability of the country, as well as clean up the finances of Pemex through a change in its business model.

The banker highlights the crucial role of banking sector in the economy and confirms the willingness of BBVA Mexico to support investment projects that promote employment and the economic activityalthough it urges maintaining a solid rule of law to guarantee certainty in investments.

What is your analysis of public finances in the final stretch of this government and its impact on the country’s economic stability?

—There is no imminent danger in public finances. The level of debt as a percentage of GDP – which closed 2023 at 47% and we estimate that this year it will reach 50% – is low for an emerging economy and consistent with the investment grade sovereign rating. The markets seem to see it this way, the main variables that measure sovereign risk have remained low this year.

Looking ahead to 2025, we believe that public finances will face a relevant challenge. The outgoing government will leave a public deficit of 5.9% of GDP and the next federal administration will need to make an effort at fiscal consolidation and reduce this public deficit to levels around 3.0% of GDP, so that the public debt-GDP ratio, in its broader concept of debt, remains stable from that year on.

The next federal administration will have to take measures to clean up Pemex’s finances, which will require changing the business model.

What is your perspective on inflation or the base rate of the Bank of Mexico and how it affects the banking sector?

— Regarding inflation, we expect the general inflation to close 2024 at a level of 3.9% and the underlying inflation at 3.6%; That is, it is below the tolerance level of the Bank of Mexico. We consider that the recent moderation in the pace of economic growth and job creation will contribute to inflation converging to Banxico’s target range in the second half of the year.

Regarding the base rate, Banxico has already started a cycle of reductions by cutting by 25 basis points (bp) to 11%: we predict that the monetary rate will be at 9.25% at the end of 2024. We also anticipate that the still attractive rate differential between Mexico and the United States (at 550 bp), coupled with the disinflationary process, gives the Mexican central bank a wide margin to continue lowering the rate without running the risk of a strong depreciation of the peso in the short term.

We believe that the downward cycle in Mexico could be faster, but Banxico continues to show signs that it will proceed with caution given the downward resistance of services inflation (5.6% in the first half of March versus 5.7% a year ago ).

BBVA Mexico. Eduardo Osuna, general director of BBVA, reaffirms that banking is a driving force of the economy and is ready to collaborate with the next government of Mexico, from which he asks for guarantees for investors (Photo: Courtesy)

In the dialogue that you will have with the presidential candidates, what requests or concerns will you present to them and how do you offer to collaborate?

— Both at BBVA México and in the banking sector we are open to respectful and direct dialogue with all political actors who aspire to hold any position. We will maintain close communication and will be attentive to the proposals made by each of the candidates for the Presidency, as well as the different levels of government.

Banking, being a driving force of the economy and a fundamental part of the economy of companies and families, is ready to collaborate in all projects that translate into investment, job creation and economic benefits at all levels.

For this, it is and will be important that the candidates can ensure a solid rule of law that enforces the necessary guarantees that allow the country to be a destination for investors, giving investment certainty at all times. In the same way, it will be essential for the next government to continue on the path of maintaining macroeconomic stability for the country. This will allow credit to be granted to more and more families and companies.

What economic opportunities and challenges does BBVA identify that will need to be urgently addressed by whoever heads the next federal government?

— Firstly, maintain economic stability as well as seek solid economic growth, for which it is necessary to lower the fiscal deficit. It will be essential that the new administration be able to attract foreign investment and strengthen national investment. Within this point we consider a key axis to reformulate energy policy, betting on clean energy and attracting companies through nearshoring.

Another point related to nearshoring is to build and strengthen the infrastructure in order to take advantage of it to have better export logistics (ports, freight trains and roads). It is important to emphasize the need to guarantee the rule of law and strengthen security and justice delivery schemes.

It will also be essential to adopt policies that allow us to reduce poverty and inequality, which continue to be very high in our country.

How did BBVA México benefit from the realignment of Banamex clients, how much did it grow in the last two years and in what financial products in particular?

— BBVA México is an institution that is always in favor of competition. BBVA México’s strategy is clear, our growth is due to a plan that the bank outlined since 2013 when it began with the renovation of branches, which was followed by the development of new products and services, as well as the strengthening of our digital offer and mobile. In 2024 we will reach 30 million total customers, of which 22 million transact through cell phones, which means that our growth has been organic and in accordance with the goals we have set for ourselves.

Considering the recent reconfiguration of Banamex, we believe that the important thing for us is to continue working on our strategy and consolidate opportunities in the short, medium and long term that will undoubtedly have the sole objective of putting customers at the center of our decisions to benefit their financial objectives.

BBVA Mexico. Eduardo Osuna, general director of BBVA México, assures that the bank has the needs of young people in its sights, and will create personalized tools to bring them closer to banking. (Photo: Courtesy)

What projects or products are you preparing to attract more customers or to improve the experience of those who are already part of the group?

— We will continue to focus on the banking of individuals, as well as SMEs, which is a very relevant segment for the country because by guaranteeing their operation through financial products or services, we help them grow their business, generate jobs and positively impact In the economy. We will also focus on young people; We want to bring them closer to the financial system to provide them with personalized tools that promote their financial education.

How much do they invest or what actions do they implement to maintain the security of their operations?

— In 2019 we announced an ambitious investment for an amount of 63 billion pesos that covers the period from 2019 to 2024, within which we have considered the areas of innovation, technology, digitalization and physical infrastructure, among others.

“The physical and technological infrastructure of the BBVA Group is solid, so our clients’ resources are protected

— Eduardo Osuna, general director of BBVA Mexico