23 March 2018 | 1:18PM EDT
Latin America Economics Analyst
Mexico: Facing 100 Days of Uncertainty and Potential Drama Crunch Time on NAFTA Renegotiation and Presidential Race We have now arrived at a critical and likely defining stage on the two main sources of uncertainty and left-tail risk facing the Mexican economy and markets—the outcome of the presidential election and the renegotiation of the NAFTA trade agreement. A significant part of the current uncertainty should be resolved, one way or the other, over the next 3-4 months, a process that may lead investors to reassess short- and medium-term relative value and macro risk.
Alberto Ramos +1(212)357-5768 | alberto.ramos@gs.com Goldman Sachs & Co. LLC
Paulo Mateus +1(212)357-5772 | paulo.mateus@gs.com Goldman Sachs & Co. LLC
Gabriel Fritsch +1(212)902-0170 | gabriel.fritsch@gs.com Goldman Sachs & Co. LLC
Outlook for NAFTA Renegotiation Has Improved in Recent Weeks Despite the slow progress, the outlook for the renegotiation of NAFTA has improved. In recent weeks there have been a number of constructive statements by the involved parties, raising the expectation that a breakthrough in the negotiations could be achieved within the next two months. Given the upcoming sequence of political events—July 1st presidential election in Mexico, expiration of the fast-track authority on July 8, and US Congressional mid-term elections in November—if a preliminary agreement (agreement in principle) is not reached by May-June, the odds of an agreement still being reached in 2018 would drop significantly, and, concomitantly, the risk of a more disruptive trade scenario would rise. An Election Like no Other! The outcome and policy implications of the July 1st elections could be far from “business as usual” as they will likely change the overall balance of political power and could also herald a shift from the hitherto investment-friendly and conventional policy mix towards a potentially more inward-looking, heterodox, state-centered interventionist platform. In exactly 100 days, Mexicans will participate in the largest general elections in their history and Andrés Manuel López Obrador (AMLO)—the leftist nationalist candidate running for the Morena led coalition—is enjoying a solid double-digit lead in the early polls. AMLO’s significant early lead may not be easy to undo in the 100 days until Election Day, barring a major campaign mistake and/or very poor performance in the three scheduled debates.
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