Country Forecast Mexico August 2018 Updater

Country Forecast Mexico August 2018 Updater

  • August 2018 •
  • Report ID: 5482620 •
  • Format: PDF


  • Andrés Manuel López Obrador of the leftist Movimiento Regeneración Nacional (Morena) won the July 1st presidential election and will take office on December 1st. As president, he will focus on defending Mexico's interests in talks to renegotiate the North American Free-Trade Agreement (NAFTA). Both the president-elect and (ahead of Mr López Obrador's inauguration) his predecessor, Enrique Peña Nieto, will struggle to boost security amid rising crime. Confi-dence in institutions will remain low after multiple public-sector corruption scandals.
  • Mr López Obrador has promised to boost public investment and social programmes while maintaining fiscal discipline, which could prove difficult to achieve. He will struggle to meet the high expectations of voters to combat Mexico's numerous social ills, including crime, corruption and poverty.
  • Uncertainty about US trade policy and the policies of the López Obrador administration will affect business and consumer confidence, keeping GDP growth relatively muted in 2018, at 2.2%, and causing growth to slow further, to 1.9% in 2019. Conditions will worsen the following year as growth decelerates on the back of a US cyclical downturn, but The Economist Intelligence Unit expects growth to accelerate to 2.4% on average in 2021-22 as domestic and external conditions improve. The success of the structural reforms of recent years will be hampered by weak institutional effectiveness and Mr López Obrador's resistance to many of the measures. Most at risk is energy reform, potentially constraining fiscal revenue and forcing restraint in capital spending.
  • Mexico is undergoing a demographic boom, but the benefits from this will be limited by poor levels of education and the fact that a high proportion of the labour force (almost 60%) is employed in informal, low-productivity jobs. The consumer market boasts an expanding middle class and fairly high income levels compared with most of Mexico's regional peers. However, high levels of inequality and poverty will hold back consumer demand, even though we expect the next government to boost social spending.
  • Mexico will seek to diversify export markets, but its fortunes will stay tied to those of the US, even if NAFTA should collapse. Foreign direct investment is below the levels of prior years, but will grow as energy and telecommunications reforms become well established. Despite US efforts to reduce the outsourcing of jobs to Mexico, the country will remain attractive, owing to low wages, a large internal market, privileged access to the US market and a network of free-trade accords. However, some domestic sectors will struggle, owing to weak competitiveness.


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