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Mexico: the year after


The Mexican president is committed to keep public finances in control during the term of his mandate, but the budget’s assumptions seem too optimistic to be achievable. In the medium term, the risk of fiscal slippage persists.

TRANSCRIPT // Mexico: the year after : January 2020

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Mexico: sluggish growth in 2020 2/5/2020
According to the first estimates, economic activity contracted for the third quarter in a row in Q4 (-0.3% y/y). Manufacturing industry was the most affected and contracted by 2%. In 2019, real GDP contracted by 0.1%, after recording a 2% growth in 2018. Real GDP growth should pick up in 2020 (+0.6%), but remains under its potential (estimated at 2.5% by the IMF). Indeed, one year after Andres Manuel Lopez Obrador came to power, his economic policy is still hard to read and weighs on investment. The future of the energy sector also raises doubts, affecting investor sentiment, both domestic and foreign. At the same time, the risk of a loss of control of the public finances is growing: against a background of low growth, maintaining the austerity programme proposed by the government will prove more difficult in the coming years.
Slowing down 9/20/2019
After recording a 1.2% y/y growth in Q1, real Mexican GDP contracted by 0.7% y/y in Q2. The lack of dynamism of US activity, weighing on the Mexican export sector and the significant slowdown in both public and private investments, due to deteriorating business and investment sentiments, are the two key factors explaining the slowdown. For the same reasons, the risks remain tilted to the downside for the coming quarters.
Mexico: Slowing growth 6/19/2019
Prospects for the economic growth in Mexico are deteriorating, owing to slower economic activity in the US, a tight fiscal stance and a persistent weakness in private investment. Real GDP growth for Q1 slowed to 1.2% y/y, from 1.7% y/y in Q4 2018. For the whole year, real GDP growth should reach 1.5% (from 2.0% in 2018) and risks are tilted to the downside. On the one hand, trade tensions with the US (following the US President’s announcement to impose tariffs on Mexican imports) will have a detrimental effect on business sentiment, even if the two countries have so far reached an agreement. On the other hand, both the lack of clarity on the government’s policies and the financial support to the state-owned oil company Pemex (which could heavily damage the fiscal balance over the long-term) are clouding the medium-term outlook. Early June, Fitch downgraded Mexico’s and Pemex’s sovereign ratings, while Moody’s changed the outlook to negative (as well as Pemex and several public companies).
Mixed sentiments 2/7/2019
The election of Mexico’s new president, Andres Manuel Lopez Obrador, raises numerous questions. Although the new president and his team enjoy strong popular support, investors are worried about the policies he is proposing for the next six years. Some of the proposals do not seem to be compatible with his promise to maintain fiscal discipline, central bank independence and economic pragmatism in general. Several existing reforms are being called into question, notably in the energy sector. Given Mexico’s strong economic fundamentals, these contradictions are unlikely to have much of a short-term impact. In the medium term, in contrast, the big risk is that they could jeopardise the government’s capacity to maintain fiscal discipline, keep the energy sector afloat and preserve investor confidence.
Under scrutiny 2/7/2019
Six months after his election, the first steps of Andres Manuel Lopes Obrador raise many questions.
Mexico, raising doubts 11/14/2018
While having signaled a pragmatic approach to policy a few days after his election on the first of July, Andres Manuel Lopes Obrador (AMLO) seems to change his words. Late October, after a contested public consultation, the new president cancelled the Mexico City Airport Project. At the same time, he announced his intention to change the Constitution, as soon as he comes to power on December 1st, to broaden the scope of public consultations in particular to budget-related issues. These statements have raised concerns about whether budgetary discipline would be maintained and about the outcome of the energy sector’s reform (initiated by the precedent government). Recent developments have triggered a sell-off in domestic financial asset prices, including the peso.
A good start to the year 5/18/2018
Preliminary data for Mexico’s growth in 1Q 2018 surprised to the upside, with real GDP expanding 1.1% q/q, the highest level since 3Q 2016.

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