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Mexico Country Risk Report 20 2018

Mexico Country Risk Report 20 2018

Growth will accelerate in Mexico in 2018, as US economic strength and oil production gains outweigh the effects of uncertainty on investment.

However, political risks will weigh on investment and public spending will be constrained amid ongoing consolidation efforts.

Leftist-populist candidate Andrés Manuel López Obrador (AMLO) is likely to win Mexico's July presidential election. However, investor fears that he will reverse key economic reforms are likely overblown, and we do not anticipate a major change in Mexico's growth trajectory.

An AMLO victory in the July presidential vote will likely bring an end to fiscal austerity, providing a tailwind to growth over the medium term.

We maintain our view that the North American Free Trade Agreement (NAFTA) will emerge from ongoing renegotiations largely intact, as the US pulls back its hard line stance on auto rules of origin and shifts its focus to China.

Banxico will enact one additional 25 basis point rate hike in Q218, bringing its policy rate to 7.75%, in response to a slower than expected pace of disinflation. We maintain a neutral stance on the Mexican peso in the short term.

A likely conclusion to the North American Free Trade Agreement (NAFTA) renegotiation will buoy the unit, although investor sentiment will weaken in the lead-up to the presidential election in July. Over the long term, relatively high real yields and undervaluation underpin our constructive view.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Growth To Accelerate Despite Political Risks
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Time Running Out For NAFTA 2.0
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS EXPORTS 2016
TABLE: TOP FIVE GOODS IMPORTS 2016
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
One More Hike In 2018
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
AMLO Victory Will Bring End To Austerity
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN SOURCES OF FEDERAL REVENUE AND EXPENDITURE
Currency Forecast
MXN: Political Risk The Driving Factor
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Mexican Economy To 2027
Key Reforms Positive For Long-Term Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Third Time Lucky: AMLO Likely To Win Presidency
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Security And Corruption To Remain Key Risks
Chapter 4: Operational Risk
Operational Risk
TABLE: OPERATIONAL RISK
Business Crime
TABLE: MAIN ACTIVE CRIMINAL GROUPS
TABLE: BUSINESS RESPONSE TO WHITE COLLAR AND ORGANISED CRIME
Education
TABLE: MEXICO & OECD AVERAGE STUDENT PERFORMANCE SCORES, 2015
Chapter 5: BMI Global Macro Outlook
Trade Tensions Take Centre Stage
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: MEXICO – MACROECONOMIC DATA & FORECASTS

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