Mexico: Elections likely to bring relative policy continuity
On 2 June, Mexicans head to the polls to elect a new president, as well as all the members of the upper and lower houses of Congress. The incumbent MORENA party’s candidate Claudia Sheinbaum is the clear favorite to clinch the presidency: She is running over 20 percentage points ahead of her closest rival in opinion polls. MORENA and its allies will also likely retain their majority in both houses of Congress.
Sheinbaum is likely to maintain current president Andrés Manuel López Obrador’s (AMLO) focus on state-led development; among her recently announced 100 policy pledges, she promised to strengthen the role of the government-owned energy firms Pemex and CFE for instance. By giving priority to state actors over private ones in strategic economic sectors such as energy, such moves are likely to tame private investment.
Sheinbaum will also continue AMLO’s focus on boosting the welfare of the country’s poorer citizens. For example, she has pledged to raise the minimum wage by over 10% a year on average and increase social handouts to students, vulnerable young people and stay-at-home women approaching retirement age. These and other steps to increase the incomes of the less well-off bode well for private consumption.
Finally, the MORENA candidate has pledged to stick to a relatively austere fiscal stance. Frugality has also been a hallmark of most of AMLO’s time in office; public debt as a share of GDP declined in the three years to 2023. That said, in 2024, the fiscal deficit is set to widen to an over decade high, and the public debt-to-GDP ratio is set to jump on a pre-election spending surge. Sheinbaum will thus face the challenge of reining in spending from current high levels, which could be politically difficult.
In sum, a Sheinbaum government would likely lead to moderate economic growth of around 2.0–3.0%. This would be below the emerging-market average, with factors such as a mediocre education system, high rates of crime and corruption, high inequality and labor market informality holding back the country’s potential. However, there is a chance that Sheinbaum could distance herself from AMLO after the election and adopt a more pro-business, structural-reform-minded policy stance, posing an upside risk to growth.
In the unlikely event that main opposition candidate Xóchitl Gálvez wins the presidential election, she would likely be a more business-friendly president than Sheinbaum. That said, governability could be a problem as Gálvez’s coalition would likely lack a majority in either or both houses of Congress.
Sheinbaum has spoken in favor of constitutional reforms that would see the supreme court and election commissioners chosen by voters. Currently, MORENA and its parliamentary allies lack the two-thirds majority in Congress required to pass these measures, but if they reach this threshold following the June elections, constitutional reform would be possible; approval would weaken the separation of powers, likely giving MORENA control over the judiciary and harming business sentiment as a result.
On a Sheinbaum government, EIU analysts said:
“We expect economic policy to stay focused on state-led development under a Sheinbaum administration. Public and private investment, including in infrastructure, is likely to drive overall activity. Without reforms, regulatory unpredictability, concerns about contract rights and protectionism in the energy sector will remain obstacles to growth.”
Goldman Sachs analysts expressed doubts about the future:
“While a potential Sheinbaum administration may not significantly compromise macro stability, limit the independence of the central bank, or significantly weaken the fiscal stance, a Morena administration and Morena led Congress may ultimately be reluctant to approve the reforms and embrace the measures required to attract investment, leverage the near/friendly-shoring opportunity, and keep Mexico on a fiscally disciplined path. […] even without a qualified majority in Congress to approve a judicial overhaul, the next president will be able to nominate 4 new supreme court justices and through them possibly give the court a pro-government tilt.”