(Bloomberg) -- Mexico’s economy will expand 2% to 3% in 2025 with a fiscal deficit equivalent to 2.5% of gross domestic product, according to a government estimate published Wednesday.

Inflation will slow to 3.8% by the end of 2024 and 3.3% by year-end 2025, from the current 4.4%, according to the preliminary numbers for the draft budget from Mexico’s Finance Ministry. Growth is forecast at 2.5% to 3.5% this year, above the average estimate by economists.

President Andres Manuel Lopez Obrador’s last year in office, which was marked by a boost in spending, is now expected to have a public deficit of 5% of GDP, up from the ministry’s original estimate of 4.9%. Public debt levels as a percentage of GDP are expected to be higher, reaching 50.2% of GDP in both 2024 and 2025, up from 46.8% of GDP in 2023.

In 2024, the government says there will be a primary deficit — without counting interest payments — equivalent to 1.4% of gross domestic product, with a 0.9% surplus seen in 2025. The cost of financing the debt is expected to be 3.6% of GDP in 2024, slightly lower than previously expected, and 3.4% in 2025. 

Additional revenue generated by higher oil prices and increased tax collection are expected to offset in part costs generated by the higher rates for new debt issuances and inflation-linked debt payments, the Finance Ministry added.

Interest in Mexico from firms intending to export to the US, plus additional public sector spending, provided a boost to Latin America’s second-largest economy this year. The statement from the ministry also cites job-creation and higher wages as important factors in generating domestic consumption.

The draft budget’s release comes in the run-up to national elections in June, with the ruling Morena party’s presidential nominee Claudia Sheinbaum leading in polls over opposition candidate Xochitl Galvez. 

Oil Prices

Mexico’s forecast oil output is 1.85 million barrels per day in 2024, and 1.86 million barrels per day in 2025, Sheinbaum has promised to cap state oil company Pemex’s crude output at around 1.8 million barrels per day as her administration shifts its focus to building more capacity from renewable energy sources.

Crude exports are estimated at around 968,000 barrels per day this year and 958,000 next year. The company has repeatedly delayed plans to end crude exports as part of its bid to make the country self-sufficient in fuel generation.

In its budget preparation, the Finance Ministry also predicted that the Mexican crude basket would be $71.3 per barrel in 2024 and $58.4 in 2025.

Sheinbaum has promised to cap state oil company Pemex’s crude output at around 1.8 million barrels per day as her administration shifts its focus to building more capacity from renewable energy sources.

(Updates with additional information from the Finance Ministry in fifth paragraph.)

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