José Antonio Meade, the country’s newly appointed Finance Minister, has presented a 2017 budget that signals the government’s intentions to step up austerity. The budget announced a 240bn MXN cut in expenditure (approximately 12.9 bn USD and 1.2 % of GDP). This is well above the cuts of 169 bn MXN for 2016 and 124 bn MXN in 2015. Most of the reductions will come from funding of the state owned oil company PEMEX (-5.3 bn USD). It would therefore seem that the government is shooting itself in the foot, as lower investments in the oil company will further reduce oil production, thus limiting future tax revenues.
In addition to these budget cuts, the sharp depreciation experienced by the Mexican peso this year (which led to higher import prices and inflation) has reduced consumer purchasing power. In a comparison of 61 currencies, the Mexican peso reported the third largest negative variation during the period from January to September 2016 (-12% YoY). It stood only behind the British pound and the Argentinean peso.
The environment will remain challenging in the short term and momentum is therefore slowing in private consumption-related sectors. Coface is downgrading its risk assessment for the country’s retail and automotive sectors, while commodity dependent sectors remain at risk.
You can read the complete Mexico Economic Update on Coface’s Website Here MEXICO’S ECONOMY: MORE DIFFICULT TIMES AHEAD