Benito Berber, Chief Economist for the Americas
On June 2, voters in Mexico will elect a new president, 128 senators and 500 deputies for the lower house of Congress. There will also be elections for governors in 8 states, the head of Mexico City, and for local congresses in 31 states (out of 32). Indeed, the upcoming general and state-level election will be extremely relevant. Currently, AMLO and his MORENA party and allies have a simple majority in Congress and govern in most of the country's 32 states. However, they don't have the two-thirds majority in Congress needed to change the constitution. AMLO's still high popularity is likely to carry Sheinbaum, to victory. Her opponent, former Senator Xochitl Galvez, is backed by an alliance of parties with different ideologies: the right-wing PAN, the center-left PRI and the left-wing PRD. The only thing that unifies the opposition is its intention to defeat AMLO/MORENA.
AMLO's still high popularity is likely to carry Sheinbaum, to victory.
Polls suggested that Claudia Sheinbaum, a protégé of President AMLO, had a wide lead of between 20 and 30 points over opposition candidate Xochitl Galvez. However, a poll released in mid-March by pollster Maria de las Heras puts Galvez ahead of Sheinbaum at 58.7% to 37.6%. We don't necessarily put a lot of faith in the numbers, but we do point out that there could be a change in the trend. Indeed, insecurity and violence have accelerated in recent days and President AMLO could be seen as ineffective. The most likely scenario is that Sheinbaum wins the presidential election but in a closer race than what polls suggest. MORENA and its allied parties will likely fail to win two-thirds majority in congress but will retain simple majority. If this result is confirmed, we don't see any change in market dynamics. Sheinbaum is seen as a replica of AMLO in terms of fiscal prudence and respect for central bank independence. However, Sheinbaum will not have such a firm grip on MORENA, which could be a problem for the market, as some wings have extreme leftist and anti-market views.
MORENA and its allied parties will likely fail to win two-thirds majority in congress but will retain simple majority.
Nearshoring represents a once in lifetime opportunity that could transform Mexico in one of the exciting economies in EM. Friction between the US and China is likely to continue independent of who wins the November election, opening a window of opportunity for Mexico. Mexico's advantages are clear: geographic proximity to the U.S., a free trade agreement with the U.S. and 50 countries, a skilled and low-cost labor force, a stable macro environment, liquid foreign exchange and debt markets, and great and delicious food. However, Mexico also faces significant challenges, such as those described above, that could derail a wave of investment into Mexico. It is up to Mexico to seize this unique opportunity. The new administration will take power in October 2024, and only then will we get a glimpse of its commitment to nearshoring and pro-market, pro-growth policies.
