Mexico has stagnated economically over the past year due to a lack of business confidence and a decrease in public and private investments caused, in large part, by the policies of Mexican President Andres Manuel Lopez Obrador and his left-wing administration.
The economy is not in a full-blown recession, but it did shrink 0.1% in 2019, falling well short of initial forecasts predicting 2% growth.
“This year is the test year for the new administration. If they don’t convince local investors to come back to the economy, it’s going to be a big deal,” said Jesus Canas, a senior business economist at the Federal Reserve Bank of Dallas.
Although it is common for new administrations to have some slowing during their transitions into power, multiple analysts told the Washington Examiner that the current economic situation is unique.
“This past year has been a bigger slowdown than what previous new administrations had,” said Chris Wilson, deputy director of the Mexico Institute at the Wilson Center, a think tank in Washington. “In modern Mexico, this is an unusual, larger-than-average slowdown.”
There has been a pervading sense of uncertainty in the business community due to the cancellation of infrastructure projects such as the new Mexico City airport, which was already partially built, and the revision of energy contracts by the new administration.
This has given investors pause when it comes to investing in new infrastructure projects or growing their businesses in specific ways due to fear of how the government might respond or change its policies.
“The almost whimsical political decisions by the Mexican government is not going well. It creates a lot of uncertainty, which leads to economic problems,” said Antonio Ortiz-Mena, the former head of economic affairs at the Embassy of Mexico in Washington and now a senior vice president at Albright Stonebridge Group, a political consulting firm.
Lopez Obrador came into office calling for radical change — often causing investors to be unsure about what to expect and creating an environment of instability.
“He has promised change on par with Mexican independence, the Mexican Constitution, and the Mexican revolution. He says we will have a fourth revolution of that magnitude,” said Wilson.
Lopez Obrador came to power on two promises: Eliminating corruption and improving the lives of the poor.
Although he is a part of the first leftist government ever to take power in Mexico, he is at the same time a staunch fiscal conservative who is known to want a balanced budget at any cost, said Wilson.
“The government has a mixed ideology. They are from the Left — sometimes their words seem like they are extreme Left — but they are not acting like that yet,” said Canas.
The health of the Mexican economy is closely tied to the health of the American economy — 80% of its exports go to the United States. Nevertheless, the Mexican economy has not prospered the way the U.S. economy has in the past year.
Conversely, the U.S. economy has not been affected much by the economic state of affairs in Mexico. Since the Mexican economy is smaller than that of Texas, its effect isn’t felt as deeply.
The one part of the American economy most exposed to damage from a recession in Mexico is farmers and manufacturers selling their goods directly in the Mexican marketplace.
Uncertainty from the U.S.-Mexico-Canada Agreement negotiations last year and the coronavirus outbreak this year has only added to investor doubt.
Despite these concerns, analysts expect the Mexican government to provide more certainty going forward and for domestic investment to return, creating higher economic growth in 2020 compared to 2019, with a growth rate between 1% and 1.5%.
