1Q24 balance of payments: a strong recovery in foreign investment to offset a return to normality in the current account
- Banco de México released the balance of payments figures for 1Q24 last week, which showed that the current account registered a deficit of USD12.6bn, mainly driven by the negative USD23.4bn in the dividends and interest item and a negative trade balance. The goods balance returned to negative territory as imports remained relatively high. This was mainly driven by a decrease in the non-oil balance while the oil balance was still in deficit. We note that exports fell overall, as the strong MXN continues to weigh negatively on this item. It is important to highlight that the services balance reached levels close to zero, increasing significantly from previous quarters and reaching a 6Y high. This was driven by travel services, which reached a record high. Meanwhile, the transport deficit decreased as it did for financial services (albeit to a lesser extent). Lastly, we need to bear in mind that the current account balance was affected by negative seasonality for both dividends and interest payments, as well as in the remittances item. Also of note is that the former account has been more negative in recent years due to higher rates.
- One of the major highlights of the BoP figures was that the financial account stood at USD20.5bn and reached a record high in 1Q24. The strong net direct investment together with a recovery in portfolio investment supported this increase. That is to say, foreign direct investment recovered in 1Q24, which was mostly due to positive seasonal effects (reinvestment of profits usually recorded in the first quarter of the year). On the other hand, foreign portfolio investment recovered from the average over the last few years and reached levels of USD9.8bn, mostly in debt securities. The Mexican investment balance was negative but only slightly (outflows were from capital markets as debt markets recorded a positive balance). The derivatives item in the financial account was negative, as has been the case for the last two years. Meanwhile, other investment flows were negative as Mexican outflows completely offset foreign inflows. Since both net direct and portfolio investment were strong, the balance of payments registered an accumulation of reserves of c.USD4.7bn in 1Q24.