Itaú BBA - Political change as trade wars loom

Scenario Review - Mexico

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Political change as trade wars loom

July 5, 2018

AMLO gains control of congress.

For the full version with all charts and tables, please open the attached pdf file 
 

The anti-establishment candidate Andrés Manuel López Obrador (AMLO) won Mexico’s presidential elections with a wider-than-expected margin, and his coalition gained control of both houses in Congress, according to preliminary results. In our view, the odds of drastic changes in economic policies are low, but there is a risk of measures that might hold back investment in specific sectors (curbing GDP growth). From now until year-end, it will be key to monitor the budget discussions and the replacement (or reappointment) of Manuel Ramos-Francia on Banxico’s board. 

An agreement on NAFTA wasn’t reached, and risks for trade relations with the U.S. are growing, with the treat of tariffs on U.S. auto imports. 

For the moment, we are leaving our forecasts for Mexico broadly unchanged. Offsetting the uncertainties over policy direction and trade with the U.S., the solid growth of the U.S. economy is boosting Mexico’s exports, which together with a dynamic labor market is sustaining growth around potential. Inflation will likely continue to fall gradually, as currency stabilizes. However, we recently increased our policy rate forecast for this year (to 8.0%), with rate cuts likely only in 2019.
 

João Pedro Bumachar
Julio Ruiz

 

For the full version with all charts and tables, please open the attached pdf file 



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