The economy shows grit while Peña chooses Meade to be his successor
Despite the overall uncertainty surrounding the fate of Nafta, indicators released in November showed that the Mexican economy remains solid, with roughly a fourth of all FDI inflows directed at the automotive sector, and the country increasingly diversifying its non petroleum exports. There was an especially strong rebound in exports in October, and capital flows remained positive.
Mexico’s financial account of the balance of payments showed an 8.01 billion dollar surplus during the third quarter, including 6.77 billion dollars in direct investment, and 5.1 billion in portfolio investments. On the fiscal front, officials continue to clean up public finances, with programmable spending scaled back an annual 10.7% during the first nine months of the year.
GDP grew 1.6% during the third quarter according to revised data, which was half a percentage point weaker than a year earlier, but that weakness could be traced in large part to the economic impact of a series of earthquakes and hurricanes. This was underscored by Mexico’s monthly GDP proxy (IGAE) for September, whose 0.9% rate of growth was practically half that of the previous two months. But there were indications that activity began to rebound by the end of that month, and the Ministry of Finance says it stands by its GDP growth forecast for the current year (2.0-2.6%) even in the event of heightened volatility and uncertainty. Banco de México, however, lowered its growth interval to 1.8-2.3% from 2.0-2.5% while we at GEA are standing by our estimate of 2.1% growth on the likelihood of a slight acceleration in the fourth quarter.
The rate of unemployment remained low during the third quarter, with the manufacturing sector the source of the greatest increase in employment (+339,000 factory jobs yoy), followed by the dominant service sector (+135,000).
The rate of consumer inflation edged back to 6.37% in October as prices climbed 0.63% above September levels, in part due to seasonal hikes in electric power rates and the conclusion of a program of free public transportation in Mexico City in the weeks following the September 19 earthquake. Now that those one-off factors have passed, we expect both annual and sequential inflation to moderate anew.
On the political front, references to the white smoke of papal succession abounded last week as President Enrique Peña Nieto chose his minister of finance, José Antonio Meade Kuribreña, to be the Institutional Revolutionary Party candidate for president of Mexico, So far, all of his rivals for the nomination have enthusiastically thrown their support behind the candidate, as have the corporate structures that long played a central role in the theatrics of PRI presidential campaigns of yesteryear, even though they long ceased to wield the same broad political power and social influence.
Ironically their embrace is of the only PRI presidential nominee never to belong to the party. However, that relatively non partisan record (he enjoyed broad professional praise while serving in a multitude of cabinet posts in both the PAN and PRI administrations), untainted by personal corruption scandals, has made him perhaps the party’s best bet to win the support of an electorate that assigns the lowest approval ratings in history to both the PRI and the administration in which Meade served until last week.
So far his task has been made easier by the Citizen Front for Mexico’s disarray, as all three parties in that coalition struggled to agree on a platform, much less devise a candidate selection process, while the other major parties have already settled on their nominees. Moreover, the leading contender to be the front’s presidential candidate has been the target of damaging media coverage, and some of his rivals for the nomination are threatening to pull out.
Despite the outpouring of PRI support for Meade last week, he will have to work hard to build alliances throughout the organization and sustain the enthusiasm of the party base while trying to appeal to a much broader electorate. Although current frontrunner Andrés Manuel López Obrador no longer enjoys the charisma he wielded during his first presidential race 12 years ago, he remains extremely popular. Most importantly, Meade must avoid missteps, carefully campaigning while waiting for the other parties and candidates to make further mistakes of their own.
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