Sentiments Flag Despite Growth, while Officials Remain Impassive as Death Toll Rises

MEXICO - Report 01 Mar 2017 by Guillermo Valdes, Mauricio Gonzalez and Esteban Manteca

While news in February showed some aspects of the economy sustaining, and in some cases, improving on its pace of growth, market analysts continued to scale back their growth expectations at the same time as both producer and consumer sentiment further accelerated their descent. Uncertainty over the future of the country’s economic and political links with the United States remains one major source of diminished expectations, but concern also continues to grow with regard to the direction of public finance in light of the government’s recurring inability to fully implement its own cuts, the effects of a weakened peso, and the accelerating pace at which public sector debt continues to pile up in both its local and foreign currency components.

Signs of a weakening economy come at a time when inflation is accelerating (4.71% as of mid February), and the monetary authority is trying to anchor inflation expectations even as the peso has weakened considerably. On top of the 50-basis point interest rate hike Banco de México announced early in the month, last week the Foreign Exchange Commission unveiled a shift in policy with plans to begin auctioning as much as US$20 billion dollars in forex hedges, with the first auction scheduled for March 6.

Just last week the National Statistics Institute reported that the Mexican economy grew 2.4% year on year during the fourth quarter of 2016, a rate identical to that of a year earlier and slightly higher than lnegi's initial estimate in its preliminary report (2.2%).

All these economic developments are taking place while the intentional homicide data shows that in the last two years there has been a troubling resurgence of violence in Mexico, and it has been gaining considerable momentum. Official data in this regard for the past 13 months suggest that the unstaunched blood-letting is likely to persist through 2017 and in the process mark a return to the most deadly period of the government’s offensive against organized crime, which was undertaken a decade ago. This development poses many questions regarding the efficacy of the current government strategy for controlling the phenomenon.

The 22.5% rise in intentional murders in 2016 was almost three times the increase of 2015. The 2,152 homicides of this past January showed the upswing in such crimes accelerating even further, to 38%, and a specialist in crime statistics has shown the first month of each year to be a reliable predictor of how this indicator will perform for the balance of the year; according to his calculations we are now on track to experience the bloodiest year on record, with around 27,200 murders.

The types of criminal activity behind the mounting death rates vary from state to state as turf wars between cartels or internecine battles for control over such syndicates remain a major factor. However, there is also increased violence emanating from gangs dedicated to more ordinary crimes (kidnappings, cases of extortion, etc.), including those disputing illegal markets, such as the siphoning of hydrocarbons from Pemex pipelines.
Meanwhile federal and state authorities appear impassive after having failed to devise new strategies to combat organized crime and respond to the blood-letting. It would appear that the federal government is even less interested in attending to the problem now that it is preoccupied with the problem of bilateral relations with the United States. If that is the case, we can expect a rising death toll.

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