Stress in Electoral Oversight Could Deepen Crisis
Indicators published in May reinforce our analysis of economic weakening trends, though there were promising developments, too. The monthly GDP proxy (IGAE) suggested a gradual firming of economic activity (+3% in March, the highest level ytd). We also saw further evidence of expanding service sector activity, including increases of 3.6% y/y in commercial activity during Q1, and an 11.8% rise in mass media information services. And the national retail association reported that same-store sales were a real 7.4% higher y/y in April, their strongest expansion since November 2011. Retail overall grew at a 12-month rate of 6.4% in March, and wholesale revenues rose 3.2%, Inegi said.
Gross fixed investment grew by a relatively robust 5.2% in February, led by a 9.7% rise in spending on machinery and equipment, a sharp reversal of the 2.5% decline in January.
By contrast, Mexico’s leading indicator for March slipped 0.03 points lower m/m, for the 18th consecutive month of weaker results. Industrial production fell at a real 12-month rate of 2%, as manufacturing output receded 1.5%, with the only contraction of similar depth in recent history the 1.3% real drop in June 2013. The industrial sector’s contribution to GDP fell, as construction (up 2% y/y) and manufacturing (up 1%) had only mildly positive gains, while extractive industries (-3.3% y/y) continued to drag on economic activity. We expect a slowdown to 2% in Q2, from 2.6% in Q1.Twelve states will hold gubernatorial elections on June 5th, and the capital will vote for a new Constituent Assembly. A conflict between the National Electoral Institute (INE) and the Electoral Tribunal could generate post-election problems. Over the past 18 months, INE and the Electoral Tribunal have been increasingly at odds over whether there have been breaches of election law, and how best to address any such violations. The discrepancies between both institutions’ decisions have cast uncertainty upon the seriousness of their actions, and the reliability of INE decisions, which are constantly being corrected by the Tribunal.
In these times of crisis and distrust of political institutions, the erosion of electoral authorities’ credibility, and failure to minimize their disagreements, could have grave consequences. Should the electoral authorities sustain this discordant dynamic over the next two years, it would practically guarantee that a 2018 presidential contest that already promises to be contentious will become even more conflict-ridden, with enormous consequences.
The most recent polling data for the gubernatorial races suggests that turnout in some races will be high, and that some contests will be very close.
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