We draw two lessons from the draft 2020 budget presentation by the government. First, it sticks to fiscal discipline on paper, as it aims at a primary fiscal surplus of +0.7% of GDP, after a target of +1% this year. While slightly boosting spending, it stays right on course, sending a pro-business signal. However, macroeconomic assumptions are too optimistic, as the GDP growth forecast for 2020 ranges between +1.5% and +2.5%. We expect sluggish growth of +1% next year (after +0.4% this year). The fiscal target is hence too ambitious. Second, it illustrates the difficult equilibrium many emerging countries struggle to maintain: the urge to resort to fiscal stimulus as global growth is cooling (and particularly the U.S., Mexico’s main trade partner) without the necessary fiscal space and under market scrutiny. In a nutshell, the budget should not be sufficient to fully reassure investors, nor to revitalize a sluggish economy that is caught between domestic political risk and U.S. President Trump's tweets.
