Country Report Mexico October 2017

Country Report Mexico October 2017

  • October 2017 •
  • Report ID: 359718

Outlook for 2018-22



  • Preparations for elections in July 2018 will dominate politics. The president, Enrique Peña Nieto, will be weakened during the remainder of his term owing to public discontent with institutional defects, corruption and crime.
  • Anti-establishment sentiment will keep Andrés Manuel López Obrador of the leftist Movimiento Regeneración Nacional (Morena) in the lead in the presidential race, and The Economist Intelligence Unit expects him to win.
  • Recent earthquakes will hurt economic activity in the rest of 2017, but reconstruction will support growth in 2018. GDP will grow by 2% on average in 2018-22; growth will be lower in 2020 owing to a forecast US slowdown.
  • The government will keep fiscal policy tight amid still-weak oil prices and to avoid any negative effects of global volatility. But deficits will persist, contributing to a rising debt stock, which will reach 57.5% of GDP in 2022.
  • Average consumer price inflation will return to within the 2-4% official target band in 2018, as the effect of petrol price increases at the start of 2017 fade away. Inflation will average 3.7% per year in 2018-22.
  • The peso will weaken from 2018 amid uncertainty over elections and trade talks with the US, and as US interest rates rise. It will strengthen in 2021-22 as economic conditions improve, but the risk of volatility will persist.
  • After narrowing in 2017, the current-account deficit will increase to a peak of 2.7% of GDP in 2020, but shrink again thereafter. It will remain manageable and will be financed by foreign direct investment and portfolio inflows.


Review



  • The two earthquakes that struck in September caused the loss of an estimated 355 lives and left a quarter of a million homeless. Reconstruction costs have been estimated at US$2bn initially, with the figure likely to rise.
  • The federal government and local authorities have scrambled to respond to the earthquakes amid criticism for poor enforcement of building codes. Citizens have asked political parties to contribute funds for reconstruction.
  • The government presented an austere budget for 2018, anticipating a primary fiscal surplus of 0.9% of GDP. Revenue will rise by 3.6%, while spending will rise by just 2.2%.
  • Mexico issued a new US$1.9bn bond in early October to prepay a 2020-dated bond on more favourable terms. The new issue carries a 4.62% yield and a maturity of 30 years, and will cover 51% of foreign debt coming due in 2020.
  • GDP grew by 0.6% quarter on quarter in April-June; year on year, growth was 3%. But the economy weakened in July, with the economic activity index falling by 0.7% month on month in seasonally adjusted terms.


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Country=Mexico Date=201710 Topic=Forecast Publisher=TheEconomistIntelligenceUnit Price=1000