With the Mexican Elections on July 1st, our Chief Latam Economist Andres Abadia has received many questions about the possible outcomes and how this will affect the Mexican economy going forward.
What do you expect to happen in the next Mexican elections?
Our central scenario is that AMLO wins the presidential elections on July 1. Polls have given him a wide margin consistently in recent months, with further gains in some polls since the debates. The withdrawal of Margarita Zavala from the presidential contest has not given impetus to the candidacy of the AMLO’s main rival, Ricardo Anaya. In fact, AMLO has gathered further strength. Note, however, that in LatAm politics anything can happen until the last ballot is counted. As for the Congress, we expect AMLO to achieve a majority, which could generate some volatility in the financial markets. But AMLO likely will not reach a two thirds majority, which is necessary to reverse the reforms in energy and education.
What do you expect from the Mexican economy for the remainder of 2018?
We expect the economy to maintain a relatively healthy growth rate, thanks to the strength of the services sector, which will compensate for weakness elsewhere. The strength of the labor market, the good performance of the credit sector, falling inflation, strong remittances in USD terms, and a robust American economy, all will help the Mexican economy over the next few quarters. But we do not expect a significant acceleration in the rate of growth, as risks are still tilted to the downside. High interest rates, a less favorable external sector, and greater political uncertainty are all constraints. We expect the economy to grow by around 2.6% this year.
Will a NAFTA agreement be achieved?
Our central scenario is that the trade agreement will be renegotiated, but it will take longer than we had expected. The tougher US stance, evidenced by the insistence of including a five-year sunset clause, and the recent imposition of tariffs on steel imports, followed by retaliatory measures by Mexico, has increased the risk of a possible collapse of the negotiations. But we still think that the risk of a unilateral withdrawal by the U.S. is relatively small. In any case, if the negotiations are extended, and an agreement is reached by the end of the year, we still face the risk that the new US Congress will reject it.
Andres Abadia, Chief Latam Economist, Pantheon Macroeconomics
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