Economics: Mixed economic indicators and new risks loom
Economic news released in November included a third quarter GDP report that confirmed growth had rebounded between July and September. However, the 2.5% revised rate left cumulative growth for the first eleven months of the year at a relatively lackluster 2.1%, which is exactly on the mark of what we at GEA have long projected for full-year 2018.
Industrial activity registered its strongest expansion in three years during September, but that improved performance was a result of both especially robust spike in manufacturing output and a one-off increase in extractive industries, a calendar distortion reflecting the easy comparison against the same month of 2017, when the oil pumping and refinery industry largely shut down due to hurricane damage and threats.
The 12-month rate of inflation concluded the first half of November at its lowest reading in the past ten bi-weekly reports, but October’s surprisingly high level and a riskier environment was enough to convince Banco de México to raise its benchmark interest rate, and warn that both economic growth and inflation risks had deteriorated in large part because of the many uncertainties surrounding the policy approaches of the country’s incoming government. With financial markets, investors and ratings agencies all spooked by troubling policy shifts and legislative proposals coming from members of the transition team and lawmakers affiliated with parties backing the next government, there are strong concerns as to whether public finance can be kept on the same even keel of recent years, especially if the government makes good on its commitment to abstain from any type of fiscal reform during its first three years, given that changes to tax policy appear necessary to mitigate expected revenue shortfalls. The problem is all the more serious given the inefficient and unviable ways incoming officials have spoken of spending, including new social programs and infrastructure undertakings that will require huge spending increases.
Observers have also been shaken by the way in which President-elect Andrés Manuel López Obrador got started with his airport cancellation/revamping, a move for which the direct costs and financial reverberations will apparently add at least 1.1% of GDP to the government’s debt costs in the next six years.
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