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Financial Sector’s Wish List for 2019-2024

Thu, 05/09/2019 - 10:29

Uncertainty was the name of the game in 2018, but Gabriel Casillas, Deputy Director General of Economic Analysis and Investors Relations at Grupo Financiero Banorte, said this year is different.

“There is no uncertainty, AMLO is following his development plans to the letter,” he told the audience at on Wednesday at Mexico Business Forum held at the hotel Marquis Reforma in Mexico City.Casillas did acknowledge, however, that the new administration’s plans is having an impact on the investment climate. “The cancellation of the New International Airport of Mexico generated a reluctance to invest,” he said. “This reluctance was seen in many aspects of economy, including an increase in interest rates on government bonds.”

Other initiatives presented by members of the Morena party at the start of the administration, such as canceling mining concessions or using Banxico’s reserves for infrastructure projects, also generated anxiety among investors who believed that policy initiatives were becoming unpredictable. Casillas countered: “Before he became president, Andrés Manuel López Obrador wrote a series of books that clearly detail his policy objectives,” Casillas said. “He is prioritizing infrastructure, social projects and undoing policies from previous administrations. There is no uncertainty, the president is following the development plans he wrote about.”

While there has been much noise regarding the deceleration of Mexico’s economy after the election of President López Obrador, Casillas said this is actually a common phenomenon. “Our statistics show that the first year in every presidential administration is one of slow growth. Companies postpone investments during election periods. Thus, there is a vacuum in private investment. Moreover, public investment takes a long time to flow and when there is little public and private investment there is little growth.”

Banorte has used this information to create an estimation of Mexico’s economic growth for 2018. “We initially estimated 1.8 percent growth in GDP. However, gasoline shortages, strikes in Tamaulipas and railroad blockades in Michoacan led to production stoppages at many companies, so we reduced our forecast to 1.5 percent.” Moreover, there are many signs that the economy is on its way to recovery. “Investment in Mexico slowed down after Donald Trump became president but gained strength again after Mexico, the US and Canada agreed on the USMCA. Moreover, the trade war between China and the US helped Mexico to become the top trade partner with the US. Mexico has been the winner of this commercial war.”

There will be challenges, however. For instance, Casillas said consumer confidence is at its highest in history but as credit penetration is very low in Mexico it is not directly affecting consumption. “What is benefiting consumption is the labor reform because it has greatly strengthened formal work, which will lead to more credit and consumption.” Another hurdle is PEMEX, which is a “proverbial stone in our shoe,” he said. “The previous administration wanted PEMEX to invest in profitable projects, such as farmouts. The new administration wants to invest in less profitable areas such as a refineries.” Casillas believes that the construction of a refinery will happen and that “it is possible to make a refinery profitable if the government gives it its full support.”

Other Banorte forecasts include a dollar valued at MX$21.30 by 2020 and a 3.5 percent inflation rate for 2019. Whatever happens with the public sector, Casillas sees a positive future for Mexico’s economic growth. “Mexico’s economy is represented by 84 percent by the private sector so whatever the government does, its impact will be contained.”