GDP On Track to Top 2% this Year, and New Attorneys to be Appointed
The evidence of a weakening of consumption and investment continued to pile up over the course of October, but there has been no evidence that would lead us to conclude that GDP will grow less than 2.2% this year. In fact, the Mexican economy grew 2.2% in August according to the monthly proxy (IGAE), a performance was achieved almost entirely on the strength of another significant expansion of the service sector (4.0%). Of particular significance was a 4.1% widening of commercial activity while non financial services experienced an annual 5.6% increase. Nevertheless, growth in retail sales has been trending lower all year long and eked out only a 0.2% increase for August, with most of that gain coming from supermarkets and department stores.
There remains a latent threat that one or more parties to Nafta might decide next year to withdraw from the accord, but despite the uncertainty this entails for investors, we remain convinced that the economic impact of the treaty’s collapse would be manageable.
In other economic news last week, consumer prices rose an annual 6.30% during the first half of October, a high level, although the least significant rise in six consecutive bi-weekly periods.
For September Mexico reported a 1.89 billion dollar trade deficit, a wider gap than a year earlier and one that reflected a 44.5% annual increase in the country’s petroleum balance. Exports increased an annual 4.7% while import growth lagged at 6.5% in September. During the first nine months of the year Mexico accumulated a 9.05 billion trade deficit, 26.4% less pronounced than the gap recorded during the same period of 2016.
This news contrasted with the deterioration of the political climate amidst the crisis in the Office of the Attorney General. In the past week and a half the Office of the Attorney General has been thrown into a deepening political crisis that began with the resignation of its politically embattled head, Raúl Cervantes Andrade, who stepped down ostensibly to clear the way for completion of a reform process designed to establish a more autonomous body in charge of law enforcement. That process would entail the current attorney general's becoming the country’s top prosecutor for a nine-year term beginning in December 2018, just as the next president takes office. However, the discussion has bogged down as opposition parties want to assure that person is not a PRI loyalist capable of effectively providing immunity against prosecution of members of an outgoing administration that has been the subject of corruption allegations.
The crisis deepened shortly after Cervantes’ resignation, when his acting replacement dismissed Santiago Nieto, the special prosecutor for election-related crimes at the PGR (FEPADE), who had been investigating numerous politically sensitive cases affecting powerful political interests both within the opposition and government circles. He was dismissed for having made public allegations and aspects of his investigation into allegations that Brazilian consortium Odebrecht had channeled millions of dollars in bribes to a key member of President Enrique Peña Nieto’s presidential campaign who later became general director of Pemex.
The opposition was outraged, arguing that Santiago Nieto ’s firing was part of a cover-up ordered by President Peña Nieto and an effort to install a more pliable electoral prosecutor. At times it has appeared that the opposition might bloc passage of the 2018 budget and other key legislative items in order to force the PRI to abandon plans to use a secret senate vote to uphold Santiago Nieto ’s removal from office. Santiago Nieto announced he will not be coming back to FEPADE, given the worsening of the political conditions to do his job properly.
The current gridlock poses risks to the administration and might eventually lead it to try to reach an agreement with the PAN-PRD-MC bloc that could provide it with guarantees that it will not be subject to politically motivated prosecutions after it leaves office, and assuring that there is a truly independent top prosecutor even in the event that López Obrador should become the next president of Mexico.
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