Economics: Shallow Budget Cuts in Jeopardy
The proposed spending budget for the Mexican federal government in 2017 reduces programmable spending by 228 billion pesos compared to the approved budget for 2016, which would bring this spending category to about the same level as what was authorized and spent in 2012, in constant peso terms, and well below 2013-2016 levels.
But this comparison is misleading: the spending reduction in 2017 should be compared against the “adjusted” 2016 spending budget, i.e., including the budget cuts announced over the course of the year. That would narrow the effective proposed adjustment to around 70 billion pesos.
There will, however, be areas of the government and activities that will be affected by spending cuts in 2016-2017. For example, according to the administration’s spending bill, the segment of fuel and energy will be cut by 81 billion pesos; outlays for housing and community services will be lowered by 79 billion pesos; those for agriculture, silviculture, hunting and fisheries by 33 billion pesos; spending on education will fall by 31 billion, and transportation will be adjusted by 27 billion.
In this week’s Economic Outlook, we will analyze in detail the reductions proposed in the government’s spending bill for 2017 compared to the 2016 budget. Those cuts are likely to face considerable resistance from the various political currents in Congress as well as from private sector and civil society organizations, which could pose the risk of great deficiencies in the final version of the budget.
Economic news last week was generally adverse, beginning with indicators of how consumers and business owners perceive development.
The National Statistics Institute’s Business Confidence Index for September showed yet more erosion of sentiment in the construction and commercial sectors, while the mood among manufacturing industry managers lightened somewhat for a second consecutive month. Uncertainty as to the future of respondents’ businesses weighed heavily. Mexican consumers also grew increasingly downbeat in their perceptions of the current state and future of the economy.
Further evidence of a less upbeat mood came from the monthly survey of private sector economists, in which analysts lowered their estimate of real-term economic growth for both 2016 and 2017 compared to their calculations of the previous month; those changes come after even sharper growth adjustments were recorded in the previous survey. Market analysts currently expect GDP will grow at an average 12-month rate of 2.13% during 2016, whereas they had projected during the previous month’s survey a 2.16% increase. For 2017, they now estimate 2.36% growth, down from the previous estimate of 2.52%.
Lastly, consumer prices increased 2.97% over the past 12 months, the highest rate of consumer inflation in the past seventeen months.
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