The Picture Darkens

MEXICO - Report 05 May 2016 by Ernesto Cervera, Mauricio Gonzalez, Esteban Manteca and Guillermo Valdes

Hard indicators published in April painted a more somber picture of the Mexican economy, beginning with a 14.2% plunge in the number of cars and light trucks exported in March, and an 11% fall in the number made, despite record domestic demand. Manufacturing export activity in general has shrunk, helping to explain the slowdown in factory hiring.
The leading indicator for February flagged 0.17 points from January, its biggest decline in 17 months, and the index of gross fixed investment rose just 0.1% in January. Though the external environment worsened, the domestic market was resilient, though the national retail association reported that same-store sales slowed, up just a real 3.1% in March, mainly due to a favorable seasonal effect. Still, industrial activity grew at a 12-month pace of 2.6% in February, its strongest expansion in 14 months.
Business confidence continues to weaken, though, in response to adverse changes in fiscal policy, and erosion of security conditions and the rule of law. Too, employers are bracing for volatility in export demand, and government spending cuts.
A more upbeat indicator came out last week, as the preliminary report on Q1 GDP showed the economy growing 2.7%, slightly better than expected, and better than 2015’s 2.5% full-year growth.
There’s also pessimism on the security front. In its final report on April 24th, an Interdisciplinary Group of Independent Experts commissioned by the Organization of American State’s Inter-American Commission on Human Rights harshly criticized the government’s handling of the case of 43 students from a rural teachers college who went missing in Iguala, Guerrero, in September 2014. The IGEI criticized the government’s refusal to pursue some key lines of investigation, and added that least 17 of the 103 people detained as part of the investigation were probably tortured to force them to confess. The report further undercut the credibility of the Mexican government’s investigation – while the torture finding was just the latest piece of a steady stream of evidence about the extent to which Mexican security forces use torture.
The authorities must try to minimize the self-inflicted damage by carrying through with their own investigation, while accepting several of the IGIE experts’ recommendations. And given the government’s utter lack of credibility, if anyone is to take the conclusions of any official investigation seriously, they would have to be endorsed by some very prestigious individuals and institutions, which seems like a very tall order. The Enrique Peña Nieto administration appears to have worked itself into a corner, from which it will be hard-pressed to extricate itself.
To complete the picture, the latest statistics show that the Mexican homicide rate has rebounded to the highs prevailing when Peña Nieto took office -- underscoring the need for authorities to redefine public security policy.

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