Signs of Economic Slowing Despite Strong GDP. Signs of a Competitive Presidential Race in 2018
Aggregate supply and demand for the first quarter grew much better than expected (4.2%) as the awaited slowing of private consumption failed to materialize, and a boost in petroleum exports allowed the trade balance to contribute half of a percentage point to overall growth. The leading index of economic activity showed a sequential improvement of 0.18 points in April, the most significant firming of this indicator in almost seven years.
The positive results were reflected in the central bank’s most recent survey of private sector economists, in which the consensus GDP estimate for 2017 was raised to 1.97% from a previous 1.66%, and for 2018 to 2.18% from 2.12% a month earlier.
But there were notable signs of economic weakness last month as investment has fallen, producer sentiment remains depressed, and industrial activity narrowed for a fifth month in April (-0.3%), despite a strong performance by manufacturing (5.1%). Moreover, there was no hiding a clear change of direction in the factors that had long been fueling growth in private consumption, and a slowing or outright loss of those drivers suggests economic growth will continue to slow over the course of 2017.
Moreover, while monetary officials and many analysts have expressed optimism that the recent run-up in inflation (6.30% at last count) will soon peak, with price pressures subsiding for the balance of the year, we expect such a change of direction will come only near the end of 2017. And while there is also talk that Banco de México’s tightening cycle has come to an end, we expect that monetary rates will continue to rise until there is clear evidence of an ebbing of inflation, especially considering that inflation risks remain. These risks include the prospect of a further deterioration in public finances as well as aggregate demand pressures, given that the recent recovery of the peso could be reversed should NAFTA renegotiations take a turn for the worse.
On the political front, the results of the GEA-ISA quarterly survey on governability and electoral preferences provide us with a clearer idea of how the 2018 presidential race is shaping up and how the broad opposition front proposal embraced so far by two parties (PAN and PRD) may be especially well positioned to win next July.
For starters, respondents were evenly divided in their choice of political party, with the new Big Three of Mexican politics (PRI, PAN, Morena) all garnering about 20%, the PRD plunging into the mid-single digits, and all others barely registering; but the field was led by “no party” at 27%.
More tellingly, however, when drawing the balance of positive and negative opinions, the PRI replaced the PRD for the first time at the bottom, with minus 30 points. Morena scored best on that scale, with many respondents saying they were unfamiliar with the new party, but there may be a strong ceiling on support for its presidential candidate (López Obrador), who has both the strongest name recognition of any contender and one of the most negative ratings (-11 points). He can at least take some solace from the four best known PRI presidential hopefuls' ranking at the bottom (between -12 and -20).
A new proposal from the PAN and PRD leaderships to form a broad opposition front on the explicit basis of turning the PRI out of office to halt an authoritarian regression (fraudulent elections, corruption, harassment and killings of critics of the government, etc.) could be well positioned to win next year’s election. The presidential candidate of such a link-up would most likely be someone from the PAN, whose three declared presidential hopefuls all fare well in exercises involving the most likely candidate fields, and were the only presidential hopefuls from any party who did not score negative numbers in our poll.
Such an alliance could be especially formidable if it attracts a number of minor parties and other forces. In a possible sign of the PRI’s misfortunes, even its governing allies in the PVEM were quick to express an interest in such an anti-PRI front, even though no one else has yet committed to such a project.
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