Mixed economic indicators and mixed economic and political signals
July has produced a batch of economic indicators showing generally positive results against the backdrop of national elections that gave a clear mandate to a man who continues to advance contradictory economic and fiscal policies - a hefty degree of inconsistency that leaves business leaders and investors saddled with a major dose of uncertainty.
Mexico’s monthly GDP proxy showed that economic growth slowed to a real 2.2% in May as opposed to the 3.0% expansion of a year earlier, with the crucial tertiary sector (+2.8%) accounting for the bulk of that expansion, alongside a strong expansion of primary activity and a slight uptick in the secondary sector. Inegi’s report on industrial activity for June reaffirmed recent trends in which there is continuing yet minimal growth thanks to manufacturing and construction, while extractive industries and utilities have acted as a drag on the overall result, and the automotive industry continues to suffer from slumping domestic car sales.
Further clouding the situation, consumer prices rose 0.32% during the first half of July, six basis points higher than the market consensus estimate, a sign that the central bank is likely to lean toward further interest rate hikes through the balance of the year.
Both consumer and producer sentiment firmed again in June, although the rise in confidence was marginal, with consumers pessimistic about acquiring durable goods and producers expressing reluctance to invest in their own businesses. Other indicators published near the end of the month showed retail and wholesale activity continuing to show strong growth, and the jobless rate falling from levels of a year earlier while edging slightly above recent lows.
Lastly, virtual President-elect Andrés Manuel López Obrador continues to sow confusion and anxiety in economic and fiscal matters as he zigzags abruptly from the orthodox column of his proposals, with which he has sought to reassure business owners and others with a responsible policy approach while respecting central bank autonomy, and the populist discourse with which he is traditionally associated and for which the transition team offers no credible plan on how it intends to finance all the ambitious social and investment programs and government re-engineering programs without blowing up the national debt.
After having gotten off to a promising start in the first days after the election, the government transition process has gotten increasingly bogged down as virtual President-elect Andrés Manuel López Obrador runs up against certain limitations. His team has committed serious messaging mistakes, and some of its proposals for dramatically re-sizing federal administration have run into unexpected resistance. And to make matters worse, now that he has finally realized his extended quest to be elected president, AMLO has gotten himself caught up in direct confrontations with electoral authorities as if he were struggling on the campaign trail.
The transition team stumbles from one rookie mistake to the next, some of which come from an excess of improvisation and too hurried an effort to capitalize on the political momentum they enjoy, with the winds of an historical margin of victory freshly in their sails.
On the messaging front, a transition official mistakenly announced that Pope Francis had already accepted an invitation to a forum for defining policies about how best to pacify the country and improve security, apparently before the virtual president-elect even sent His Holiness a formal invitation. And constantly shifting plans about what the AMLO team wants to do about the Mexico City airport and just how he intends to let the public decide its fate have left the whole matter totally up in the air.
The next government is already picking unnecessary fights, such as AMLO's accusing the national electoral authority of seeking political revenge by imposing a fine on his Morena party. And it is probably making the launch of the next administration all the more difficult by failing to explain the merits of its shifting proposals, and especially by laying the ground for stiff resistance from career public servants both by announcing well in advance that most of them are to be laid off and that those who are left will have their salaries and benefits slashed. Such resistance could extend even to salaried workers, thanks to plans to uproot from the nation’s capital a dozen ministries and send them to various destinations in the provinces.
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