Economics: New data could weigh on investment

MEXICO - Report 11 Feb 2019 by Mauricio Gonzalez and Francisco González

The main source of concern weighing on economic agents in Mexico, whether domestic or international, is the heightened sense of uncertainty regarding Mexico’s economic evolution during 2019 and in the years to come, and how much risk it might pose to their investment, sales and earnings expectations. Diverse indicators that have been published in the past two weeks shed light on the direction of Mexico’s balance of payments during 2018.

The country’s petroleum trade deficit continues to grow, with the country still highly dependent on imports of gasoline, natural gas and petrochemicals while pumping out less and less crude. The capital balance has been adversely affected as foreign direct investment has slipped recently, and FDI in new investments has trended lower for the past seven years. While the energy sector developed into the main source of new investment growth in the wake of the energy reform, that expansion is now in doubt. Fortunately, remittances and tourism income soared last year to record highs.

Some leading indicators, such as the evolution of the exchange rate, interest rates, and investor expectations are also sources of concern, a pattern underscored by the dimmer view of the financial health of Mexico, and especially of Pemex. In this context, and given the current federal government’s actions, we believe that the uncertainty being experienced by economic agents (risks, probability of occurrence, “severity,” etc.) have had an impact on the investment decisions of both domestic and foreign investors in Mexico.

All of the data underscores the imperative need for public policy to promote greater investment, but also to assure that existing investments in Mexican assets remain in the country.

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