Mexican Growth Seen More Dependent on Domestic Issues

Private economists surveyed last month by the Bank of Mexico kept their expectations for economic growth this year at 2%, but put domestic matters such as politics and public security at the top of the list of things that could stymie the economy.

The survey, published Tuesday, shows growth estimates have picked up from the start of the year, when concerns about strained U.S.-Mexican trade and investment relations under the administration of President Donald Trump led business and consumer confidence to sink.

Foreign direct investment in Mexico has remained steady, and negotiations to update the 23-year-old North American Free Trade Agreement, due to start mid-August, are no longer expected to disrupt the trade on which Mexico relies heavily.

Potential obstacles to growth most mentioned in the central bank's July survey of 35 analysts were internal political uncertainty and problems with public security, followed by Mexico's low oil production and rising inflation. The level of concern averaged 5.3 on a scale of 1 to 7, where 7 indicates the most limitations to growth.

In January, the main problems were seen as international political instability, weakness in export demand and the global economy, and international financial instability.

As concerns about the "Trump effect" fade, analysts are turning their sights to rising criminal violence in Mexico and next year's presidential election, in which opinion polls show leftist presidential hopeful Andrés Manuel López Obrador leading voter preferences.

Although polls at this early stage should be taken with a grain of salt, "a potential López Obrador victory would increase the likelihood of a market selloff," Nomura strategist Benito Berber said in a July 20 report.

On the security front, the National Statistics Institute reported last week that the country's murder rate rose to 20 per 100,000 inhabitants in 2016 from 17 in 2015, and government data show homicides rising sharply this year. The murder rate was 24 per 100,000 inhabitants in 2011.

Despite those concerns, business and consumer confidence have been recovering. The peso is at its strongest level in more than a year, the economy grew about 2.3% in the first half of 2017, and unemployment is at an 11-year low.

A fifth of the analysts in the July survey considered now a good time to invest in Mexico, compared with none in November, in the wake of the U.S. election. Inflation expectations held steady at 6% for 2017, and the median estimate for the year-end exchange rate was 18.38 pesos to the U.S. dollar, compared with 18.70 in June.

Write to Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

August 01, 2017 13:15 ET (17:15 GMT)