Economics: Economic and political regime change modifies the balance of risks in the medium-to-long term
Amid a wave of fresh constitutional reforms, some already approved and others progressing at a fast clip, the arrival of the new president and Federal Congress marks a shift in the country's economic-political regime—a shift that defines a balance of risks and opportunities that are quite different from what we were looking at a few months ago. This turn has heightened risks, and while opportunities continue to exist, it remains to be seen whether they will be adequately exploited. The most prominent among the risks that require immediate attention are the weakening of public finances and the economic slowdown.
In the first case, it is expected to be very difficult for the government to lower the deficit as the administration has ruled out a fiscal reform despite growing mandatory expenses associated with pensions and interest payments, alongside a further expansion of cash-transfer social programs, substantial obstacles to any adjustment in spending. The picture is further complicated by the poor operating and financial situation of Pemex, for which the new government is unwilling to find a fundamental solution. As for the second risk, a loss of economic dynamism has been observed in all components of the demand for goods and services, and the current government has not presented an effective strategy to dispel uncertainty that could clear the way for an economic reactivation in the short term.
This week’s Outlook analyzes the main risks and opportunities for the newly installed Sheinbaum administration, as well as the macroeconomic outlook for the end of this year and the next. In the week's economic news, consumer confidence softened sequentially in September on a seasonally adjusted basis.
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