BUENOS AIRES (Reuters) - Mexico will have to keep up its surprisingly good exporting performance to avoid a recession in coming months as it faces risks from slackening global demand and campaign politics before next year’s U.S. presidential vote, a Reuters poll showed.
Mexican growth was forecast at just 1.3% in 2020, a weak pickup from an expected 0.5% this year, according to the median estimate from 32 analysts polled Oct. 8-15. Forecasts were notably lower than in July, mainly due to a stagnant domestic front.
A rift with Mexico’s government about some policies has led businessmen to put off big investments in recent months. Officials have pursued austerity to prevent further private sentiment damage, but limiting public spending also hurt growth.
Despite sluggish domestic activity, “the one silver lining has been external demand, as, contrary to our expectations, it is likely to add to growth this year,” J.P. Morgan analysts wrote in a report this month.
U.S. import substitution away from China caused by an ongoing tariff war has benefited Mexico, with its automotive sector even gaining market share in the world’s biggest economy, the bank added.
However, this positive side effect for Mexico could be undone as “the hit to ... business confidence trade policy uncertainty has created is starting to spread into the labor market” in developed economies, J.P. Morgan analysts wrote.
Meanwhile, a potential dilution of the United States-Mexico-Canada Agreement process in the political gyrations of the 2020 U.S. presidential election race if U.S. lawmakers do not ratify it soon also weighs on the outlook.
This week, President Andrés Manuel López Obrador urged them to act before the trade deal is “contaminated” by the U.S. election cycle. U.S. Democrats want Mexico to implement labor reforms first.
Some think it may be already too late. “After (U.S. President Donald Trump’s) impeachment discussions started in the U.S. Congress, chances for the USMCA to be ratified in the short term practically vanished,” Scotiabank analysts noted in a recent report.
Mexico’s central bank was expected to maintain a dovish stance to add monetary stimulus. Economists in the poll anticipated more reductions in official rates, currently at 7.75%, to 7.50% by year-end and 6.75% at the close of 2020.
BRAZIL: WAITING FOR INVESTMENT
A better picture was painted for Brazil, with a growth forecast of 2.0% in 2020. Estimates were similar to July’s survey, when projections were slashed due to expectations of protracted political uncertainty.
However, next year’s forecast was slightly lower than in the last poll, representing a third small cut of 2020’s growth estimate in a year and leaving it at the boundary of what would be considered poor progress, rather than moderate.
Analysts remained optimistic a recovery in private capital spending would be unleashed once President Jair Bolsonaro government’s reforms to trim Brazil’s oversized budget are finally passed, making up for this year’s disappointment.
But views are turning more modest. “Until we see investment pick up from levels that are low, even within a region of low investment, it is difficult to see a material improvement in the country’s low potential growth rate”, Scotiabank said.
Lofty prospects for Latin America’s top economy unraveled earlier this year as Bolsonaro’s pension and tax plans crashed with the harsh realities of Brazil’s Congress, where horse trading has been intense with his allies and foes alike.
Final Congressional approval for the pension overhaul is expected by Oct. 22 after lawmakers agreed on how to share surplus oil revenues from an auction of pre-salt concessions in November.
As in Mexico, Brazil’s central bank is expected to come to the economy’s aid by cutting rates to a multi-year low of 4.75% at the end of 2019 and keeping there through at least the first half of next year.
The problem of placing high hopes on promises of great investments rooting in hard reforms is clear in Argentina, where the economy collapsed during President Mauricio Macri’s term before any durable stream of capital inflows set in.
While companies were pondering if investments for the long-term were worthy in Argentina, its economy was hit by a drought, policy errors and fears of a return to populism - and is now looking at a third year of recession in 2020.
The country goes to the polls this month and the Peronists are likely to win, but their recipe for growth is unclear. Investors think the political situation is “not close to bottom yet”, a BofAML Latam Fund Manager survey said this week.
(For other stories from the Reuters global economic poll:)
Reporting by Gabriel Burin; additional polling by Manjul Paul in Bengaluru and Jamie McGeever in Brasilia, editing by Ross Finley and Nick Zieminski
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