Economic data mixed but some positive signs, and AMLO holds all the cards, for now
There was plenty of data published this past month confirming a further slowing of the Mexican economy. Between April and June, GDP decelerated from levels of the previous five quarters year, a development that reinforced our January forecast that growth will slow to 1.9% this year. Factory activity slowed from 2017 levels owing to slackened demand for some manufacturing exports amid the uncertainty on the Nafta talks and broader trade fronts. The August report from the National Retail Association showed only a marginal annual increase in same store sales, which have fallen a real annual 0.3% on average so far this year. And domestic sales of cars and light trucks fell for a 14th month in August and are down a cumulative 7.8% for the year.
But a series of key indicators provided results that either surpassed expectations or confirmed sources of continuing resilience. The monthly GDP proxy (IGAE) for July showed a 2.8% annual rate of growth, with construction and utilities being the sectors that served as sources of growth while manufacturing output was flat and extractive industries experienced yet another major contraction. Private consumption’s growth trend remains intact, buoyed by the strength of the labor market and historically high remittance flows. Retail sales grew an annual 4.2% at the same time as wholesale commerce expanded 4.5%, with both reports marking major improvements over results from earlier in the year and 2017.
On the political side, President-elect Andrés Manuel López Obrador’s victory on July 1 has clearly helped to lighten the social mood in Mexico, with people expressing greater optimism on many fronts, as we indicated in our first installment of the latest GEA-ISA poll of registered voters last week. One clearly positive development in this regard is the extent to which this has translated into something of a thaw in the general skepticism the public has maintained in in the country’s democratic institutions, with the percentage of people who say they are satisfied with the way democracy is working jumping from 20% in June to 32% in September, and those expressing strong confidence in electoral authorities doubling from levels registered at the beginning of the year. Moreover, one out of four respondents said that political parties strongly represent the interests of Mexican society, the highest reading in four years.
At the same time that party system is being put to a major test as Morena has emerged as Mexico’s first hegemonic party in well over two decades, with López Obrador riding strong approval ratings and his partisans wielding clear majorities in both chambers of Congress. Morena’s positive 29% balance of positive and negative opinions contrasts with the overwhelmingly negative readings of the country’s other major parties, which are under water with negative ratings ranging between -29% and -44%.
But such lofty levels of social support cannot hide some points on which even some pro AMLO voters remain skeptical of and decidedly opposed to some of the ideas the incoming administration has been proposing. The electorate expresses considerable skepticism about the next government’s ability to deliver on its signature campaign promise to reduce corruption, and there is considerable opposition to López Obrador’s idea of an amnesty to help pacify the country.
Overall, current voter mood and opinions suggest that the next government will assume power under very favorable conditions, with a strong political mandate that could make for an extended political honeymoon at a time when opposition forces are greatly weakened. But the goodwill most voters feel toward the next government could dissipate rather quickly if they don’t start to see signs of positive change in the not-too-distant future.
Now read on...
Register to sample a report