Mexico Executives Brace for Uncertainty

On November 5, 2018, FSG held its final executive breakfast for the year in Mexico City, with a group of country managers, regional executives, and CFOs, where we presented our outlook for the next sexenio led by Andrés Manuel López Obrador (AMLO). The business community and investors were skeptical about AMLO’s potential presidency leading up to the presidential elections that took place on July 1, where AMLO swept away 53% of the electorate. After AMLO’s landslide victory, a fluid dialogue was installed between the incoming administration and the business community, gradually improving the business confidence in Mexico, which has been negative throughout 2017-2018. This sentiment was also reflected among FSG’s clients, as revealed in an August poll that showed an overall “cautiously optimistic” feeling towards the economy and business outlook in Mexico.

But this sentiment faded in October at the same pace as uncertainty heightened regarding AMLO’s policy shifts and the economic policies that might prevail after December 1—the day AMLO’s sexenio begins. This was the result of the decision taken by AMLO and his party, Movimiento Regeneración Nacional (MORENA), to comply with one of their campaign pledges, shutting down the construction of the new international airport in Mexico City (better known as the “NAIM”) through a legally questionable “popular consultation” that generated FX volatility, prompted Mexico’s credit rating downgrade, and fueled uncertainty among investors.

This uncertainty shifted FSG’s clients’ confidence as well, which was reflected by 70% of those present at the November event who considered that AMLO’s victory will have a negative impact on Mexico’s economy and business environment.

A lot of questions remain about the path forward following a transformative sexenio that will start on December 1, such as: Which AMLO should multinationals expect to deal with: a pragmatist or a populist? How will AMLO deliver on his ambitious policy platform amid a challenging external environment? Will Mexico and the US be able to ameliorate tensions and adopt a more cooperative approach under the stewardship of two controversial leaders, President Trump and President López Obrador?

Below are key takeaways from the event

  1. MNCs are skeptical about AMLO’s policy platform, particularly his ambitious government spending plans: Mexico has been able to better weather the region’s slowdown since 2012 relative to other large markets, cementing its reputation as a resilient market for top-line and bottom-line performances. This reputation has been built through sound macroeconomic stability that has aided Mexico’s growth, albeit moderately in a region that was deeply affected in the last four years by political crises and the end of the commodity cycle. MNCs have shown concerns that AMLO’s ambitious social spending plans and ambiguous fiscal policy could put Mexico on an unsustainable fiscal path, eroding its hard-earned credibility among international investors. These concerns have increased recently following President-electLópez Obrador’s decision to shut down the NAIM.
  2. Country managers are not factoring in higher taxation for their 2019 business plans but are worrisome looking ahead in the sexenio: Although AMLO’s decisions throughout the transition period have raised concerns among MNCs regarding taxes and a deterioration of the business environment, 86% of executives based in Mexico are not expecting higher taxation for 2019. However, following discussions regarding the financing of government spending throughout the sexenio at FSG’s event, executives’ feeling shifted as many expressed expectations of more taxes starting in 2020. This is due to the anticipation that AMLO’s government will not be able to fulfill its agenda with the resources it currently has at its disposal.
  3. MNCs are preparing for a sexenio that will be characterized by “populist uncertainty”: After making an assessment about the difficult challenges ahead of the AMLO presidency and the feasibility of AMLO’s policies in terms of financing,amid a challenging external environment (e.g., US economic slowdown, weak oil prices, delayed passage of the USMCA treaty, and tightening global liquidity), the consensus was that MNCs should start preparing to navigate a sexenio that will be marked by “populist uncertainty.”

Despite concerns about the next administration’s policies and their impact on the business environment, Mexico remains as a key market where MNCs could thrive by staying ahead of the curve.


FSG will continue to track developments throughout the political transition and debate regarding the 2019 budget, which will shed light on AMLO’s government spending priorities. Clients can access our Mexico 2024: Outlook and Scenarios piece, which examines these issues and provides concrete economic forecasts and actions to take under varying scenarios. For more in-depth briefings,please contact your client relationship director.

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