Hints of a Slowdown To Come, While Time Is Not On the Side of Peña’s Legacy
The economic data released over the course of March provides encouraging signs of continuing growth in certain areas of the economy, but also potential harbingers of a slowdown that might emerge in future months.
A case in point is private consumption, which remained the Mexican economy’s main growth driver throughout 2016. We at GEA look for such consumption to lose steam over the course of 2017 (with growth being more than halved to 1.5% e), as its main precursors such as consumer credit, remittances, and the formal sector wage mass are on track to slow during the second half of the current year, while at the same time inflation has rebounded considerably, including a very pronounced upswing in the cost of the basic basket.
Retail industry results are already showing negative same-store sales through the first two months of the current year, and consumer and producer confidence have experienced something of a free-fall during that same period. Initial labor market indicators for the year show weakness in remunerations as real wages fell 0.6% in January 2017 compared to the same month of a year earlier, an erosion that resulted primarily from an acceleration of inflation.
Financing to the non financial private sector sustained high levels of real-term growth in late 2016, and bank credit grew markedly in January 2017 in the case of both company loans and consumer credit, according to central bank data. But with the cost of the dollar debt companies amassed in recent years on the rise as interest rates climb, the peso remaining weak and consumer credit drivers starting to flag, we can expect a slowing of credit in general.
A further aggravating factor has been the upswing in inflation, as the 12-month headline rate of consumer inflation climbed to 5.29% largely due to the spike in energy prices, and a continuing upswing in goods inflation that extended to both its food and nonfood components.
All of the above, in addition to other problems in the implementation of the government's political program, has caused the lowest approval for President Peña in his whole term. With less than 20% of Mexicans approving of the job he is doing in office, and less than 15 months left before voters head to the polls to choose Mexico’s next president, President Enrique Peña has precious little time to leave a positive mark. But any attempt at reinvention would face considerable odds.
The latest GEA-ISA poll shows that 43% of registered Mexican voters cannot think of a single positive achievement to date by the Peña administration while only 7% couldn’t think of a “greatest failure”. Perhaps nothing is more telling about the fate of Pena’s legacy than the extent to which the public has turned against its structural reform agenda, with only 20% saying they are opposed to repealing the energy reform.
It comes as little surprise that more than three quarters of the citizenry believe the country is not moving in the right direction either politically or economically given the government’s chronic failure of messaging and an inability to deliver on its promises.
The levels of disapproval, combined with the many unforced errors the government has committed in implementing its program, and the scant moral authority it is left with following an extended string of conflict-of-interest scandals, cases of rampant corruption documented in state governments, and the Ayotzinapa massacre, has left the president’s credibility at historical lows. The percentage of people who say they believe nothing the president says has climbed to well over 60%.
Perhaps most troubling for the administration of President Peña is the scant margin of maneuver left within which it might improve its standing in the eyes of the public now that it is more than two-thirds through its time in office. But time is not the only thing that stands in the way of such a recovery. We can cite five factors as major obstacles: the administration’s paucity of public legitimacy; minimal space in which to manage economic policy; little leverage with which to manage the US-Mexico bilateral agenda; the lack of resources it has for dealing with the security crisis, and the fact that the presidential succession process is already underway.
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