Economics: FDI data more troubling than it looks
Foreign Direct Investment for the first quarter may have come in 66% above levels of the fourth quarter of 2018 thanks in large part to highly favorable seasonality, but compared to a year prior, it fell to its second lowest level for any January-March period in six years, a performance more in line with the period prior to 2013. The first quarter of every new presidential administration is generally marked by atypical weakness in investment, but it proved to be more pronounced last quarter than we witnessed in the first months after President López Obrador’s two predecessors were sworn in.
While we don’t feel this shortfall poses any macroeconomic threat in the short term, and recognize that many factors weighing on investors’ considerations are fully outside the control of Mexican authorities, the latter would be wise to pursue policies that can attract greater investment, especially at a time when economic growth is slowing globally and protectionism is on the march.
So far the government has tended to stoke rather than dispel uncertainty with some of its words and deeds, suggesting to current and potential sources of FDI and resident investors that they must adapt to rules clearly different than those of past administrations. But it is still not clear what the new rules might consist of beyond the discretionary and sometimes petulant decisions made so far. Unfortunately, such sources of investor concern are not something to which the government appears to be assigning proper importance.
On the contrary, its actions have contributed to a rise in labor strife, while agencies charged with international promotion of business in Mexico are being dismantled, and the presidency has occasionally lashed out at major multilateral economic institutions and ratings agencies. It has promised to maintain during its first three years in office key laws and fiscal policies that it inherited from its predecessors, but with its insistence that the days of neoliberalism are a thing of the past, it seems to dangle the possibility that the new government could usher in a major turn in the second half.
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