Key Takeaways

  •  Uncertainty has been rising sharply in Mexico since June, when new president, Claudia Sheinbaum, was elected and the Morena party won a landslide victory. 
  • This is due to increased investor scrutiny of the reform agenda she inherited from Andrés Manuel López Obrador and market concerns about the US.
  • Following the approval in September of one of López Obrador’s main proposals – the judicial reform – investors await details on what shape other proposals may take. 
  • Sheinbaum’s administration may slow or limit the scope of changes to appease investors, particularly if the US election results spark renewed market pessimism.
  • However, we ultimately expect the government to carry out the flagship components of López Obrador’s agenda before Mexico’s mid-term elections in 2027.
  •  Muted short-term growth will hamper fiscal consolidation over 2025, posing additional risks for investor sentiment.
  • We expect Banxico to lower its policy rate by a further 50bps to 10% by year-end. The rate path over 2025 will depend on the US election outcome, with a Harris victory providing greater room for stimulus than a Trump win.
  • Over the medium term, Mexico will likely benefit from “nearshoring” due to its connectedness with the US. 
  • That said, investor caution regarding the rule of law and USMCA compliance risks stymieing future FDI inflows. 

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