23 | MAR | 2019
AMLO’s administration to start amidst financial uncertainty
Alfredo Coutiño explained that Mexico’s economy has experienced an unbalance for several years now, making it more vulnerable to both internal and external shocks - Photo: Taken from Andrés Manuel López Obrador's official Twitter page

AMLO’s administration to start amidst financial uncertainty

17/11/2018
14:26
Tláloc Puga
Mexico City
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Several claims and actions undertaken by the upcoming administration have sparked uncertainty among investors

Mexico’s upcoming government, led by President-elect Andrés Manuel López Obrador, will inherit an economy shrouded in uncertainty and instability, according to analysts consulted by EL UNIVERSAL.

The director of Moody’s Analytics in Latin America, Alfredo Coutiño, explained that Mexico’s economy has experienced an unbalance for several years now, making it more vulnerable to both internal and external shocks, which are likely to detonate periods of financial volatility such as the one that the country is currently experiencing.

The specialist commented that López Obrador will take the lead of a slowing economy with levels of uncertainty that could become aggravated if the upcoming administration should implement more actions and proposals to the detriment of investment in the country, such as the cancellation of the Texcoco airport project, as well as the initiative to reduce or eliminate bank commissions.

These statements and actions are generating a common perception: Not only are things going to be different that what López Obrador had claimed during his campaign, but there will also be government actions that will pose risks to private property and both domestic and foreign investment, explained the analyst.

“These little gray clouds that have now hovering over Mexican economy after the results of the July 1 elections are beginning to look like a storm and, due to the upcoming government’s recent actions, the storm could grow even more on December 1, when López Obrador is set to take office, unless measures are taken to reduce uncertainty among investors regarding the future of the country,” commented Coutiño.

The director claimed that financial uncertainty not only increases the national debt burden, but is also generating losses for private companies and ordinary citizens due to higher interest rates caused by an increase in inflation levels.

He added that public security issues have persisted for years, further discouraging investment in the country.

With regard to external factors that have taken a toll on Mexican economy, the director of Moody’s Analytics mentioned the drop in oil prices and geopolitical conflicts, though he underlined the rise in interest rates of the Federal Reserve, which puts pressure on the monetary policy of Mexico and the rest of the world.

Furthermore, there have been threats to international trade caused by the government of Donald Trump, as well as the trade war between the U.S. and China. Another factor is the approval of the new “free” trade agreement signed by Mexico, the United States and Canada (USMCA) shortly after the U.S.’ Democratic Party won a majority in the House of Representatives during the November election.

“There have been talks about fatigue in global economy which could aggravate next year. It is also said that the U.S. economy could begin to decelerate in 2020, which could be further aggravated in 2021.

Growing below potential

For his part, the chief economist of J.P. Morgan in Mexico, Gabriel Lozano, expressed that the upcoming government could begin with a national economy that is growing below potential.

He explained that, since last year, investment in Mexico has become more moderate, mainly regarding the energy sector, due to commercial uncertainty in North America.

The director of the United States’ largest investment bank said that, shortly after the result of the intermediary elections in the American Civil Liberties Union, the confirmation of the USMCA is essential to reassure investors that their long-term projects in Mexico are guaranteed and protected within a solid legal framework.

However, he commented that the greatest cause of uncertainty has been the series of complicated, and often contradictory messages, transmitted by the upcoming administration, specially with regard to the discretionary use of public referendums and the proposal to ban banking commissions.

“AMLO’s government will start the year having raised a series of questions regarding the future of the country. This should be enough reason for his administration to try to appease investors and send a message of temperance and reassurance,” he claimed.

From his perspective, it will take a series of political measures to appease the markets, as well as a revision of the 2019 Government Budget, which will have to meet certain standards and correspond to the reality of Mexico.

Weak industries

The director of the Industrial Development and Financial Growth Institute (IDIC), José Luis de la Cruz, expressed that López Obrador would inherit an economy that has lagged behind its average growth rate in the past few years, as well as underdeveloped industries with sectors that have been largely affected by tariffs imposed by the U.S. government.

He also commented that the raise in induced inflation had caused higher interest rates. “The decision to cancel the Texcoco airport, as well as the initiative to regulate commissions in the banking sector are making investors nervous about the decisions that the upcoming administration might make for the economy of Mexico. Meanwhile, there is uncertainty on the impact that the new interest rates will entail,” concluded De la Cruz.
 

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