Mexico Country Risk Assessment: Geopolitical, Sovereign, and Economic Risks Analysis Report

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[...] Political, geopolitical and social risks of Mexico At the domestic level, the political risk is stable. Indeed, the October 2024 Sheinbaum government election brings strong political stability, but institutional and governance weaknesses persist: governance indicators are thus poorly performing, due to a high level of corruption, insufficient political freedom, and a low respect for the law. At the international level, the geopolitical risk has strongly aggravated, particularly with the United States, due to the commercial war launched in the spring of 2025 by the Trump administration and the 2026 revision of the USMCA treaty (the trade agreement between the United States, Mexico and Canada) generating great uncertainty. [...]

[...] Mexico's Macroeconomic Indicators 2023 2024 2025 (estimation) GDP Growth 3,2 1,5 0,8 Inflation 5,5 4,5 3,5 Public Debt (as a % of GDP) 53,1 57,7 58,5 Current Balance (as a % of GDP) Foreign Exchange Reserve (in months of imports) 3 4 4 Exchange Rate du Peso/$ + 14,68 % - 18,71 % + 13,73 % (until 15/11/2025) Source: World Development Indicator (WDI) of the World Bank Risk Matrix Impact Probability Average Probability High Probability High Impact CLIMATE SHOCK Extreme climate events (hurricanes, droughts) causing significant economic damage COMMERCIAL SHOCK Tightening of US tariffs penalizing employment and growth Average Impact BUDGETARY SHOCK Deterioration of sovereign rating, increasing the interest rate on public debt FINANCIAL SHOCK Rise in the long-term American rate making the peso more volatile Conclusion Despite its regained political stability, Mexico's risk profile is moderate but volatile, due to two dominant risks: the geopolitical risk, due to the trade war launched by the United States, and the budgetary risk. Two major points of vigilance must be monitored for 2025-26: the economic consequences of the trade war, the impact of budget consolidation. [...]

[...] This deterioration of Mexico's public finances weighs on the confidence of international creditors, which could in the future increase the cost of debt, through the rise in interest rates, which would make it more difficult to finance the state by borrowing from international investors. The risk of external indebtedness is a medium-term risk, which proves controlled. In fact, Mexico's external position is comfortable, with a moderate external debt that reaches 32% of GDP in 2024, a 2.9-point decrease compared to 2023, with debt service representing nearly of GDP in 2024. Foreign exchange reserves are adequate with 4 months of exports in 2024 (compared to 3 months in 2023). [...]

[...] The current account deficit has slightly increased in 2024, up by 0.4 points. The exchange risk is inscribed in a short-term time perspective and remains very important in Mexico. In fact, the Peso has shown a strong volatility against the dollar as it has depreciated by nearly 19% in 2024 due to political uncertainties and the monetary easing led by the central bank (Banxico), while it had appreciated by nearly 15% in 2023. This high level of volatility of the Mexican currency exposes investors to an increased risk of losses if their expectations of exchange rate fluctuations are not correct, or conversely to a high potential for gains in the short term, if their expectations of the peso exchange rate are in line with its evolution. [...]

[...] Risk Assessment - Mexico I. General Diagnosis Recommendation : I recommend to a General Management to invest in Mexico, which presents a moderate risk in the short term, due to a low but volatile internal political risk, due to the geopolitical risk manifesting itself at the commercial level (US customs rights). In the medium term, a major risk must be monitored, that of budgetary risk, which would lead to a debt crisis with negative consequences for growth and investment in the country. [...]