-Analysis-

MEXICO CITY - In the first 100 days of the presidency of Andrés Manuel López Obrador (AMLO), Mexico has embarked on a process of major social and political change in a context of economic and market uncertainty, even instability. It may be too early to adequately untangle the nature and scope of our economic problems at this stage of AMLO's six-year term. Still, certain signs indicate that despite the persistence of a kind of national inertia, certain government decisions are creating new conditions that could change something in our economic life.

Checking the pulse of four key areas — production, inflation, exchange rates and unemployment — we can begin to separate the old from the new, and discern possible new patterns.

The government's macroeconomic approach has been broadly orthodox along two, fundamental axes: monetary and fiscal policies. The first is the responsibility of the Central Bank and the second, the Finance Ministry, both of which have been coordinating their actions. The two have worked together to boost the economy in an environment of relative monetary and financial stability, against the pessimistic auguries of AMLO's critics.

The notable points of concern begin with a decline in the growth rate since late 2018. Effectively there was a "coincidental" decline in the last two months of last year in public and private investments and consumer spending, and stagnant industrial exports. This has led many analysts to revise downwards Gross Domestic Product (GDP) forecasts for 2019, while some are even fearing, prematurely perhaps, negative growth in the first quarter, in a likely prelude to a recession. One should consider here the hesitant international economic setting and limited dynamism both in industrialized states and emerging economies.

We should also recall that a slowing economy has been a constant of the last eight presidencies (1970-2018). Usually the announcement of new economic policies alongside adverse, national and international factors have either slowed growth or even provoked recessions. It happened in 1971, then in 1977 with President José López Portillo, with Felipe Calderón in 2007 and Enrique Peña Nieto in 2013. Presidents Ernesto Zedillo and Vicente Fox faced bona fide recessions in the first two years of their administrations, beginning in 1995 and 2001 respectively.

The peso's consolidation has improved the financial mood.

Inflation has clearly lost steam in recent months, running in February at an estimated annual rate of 3.89%. This "hawkish" phase of the Central Bank culminated with a freezing of the daily interbank rate at 8.25%, following a unanimous decision taken in AMLO's collegial cabinet.

The currency exchange turmoil of the first months after the 2018 elections, particularly affecting the dollar-peso rate, have also ceased. The peso's consolidation has improved the financial mood and belied dire warnings from critics on the consequences of AMLO's decisions on the new (now cancelled) airport. A balanced fiscal policy for 2019 has generated investor confidence, as have several presidential initiatives to calm private-sector fears. The peso's revaluation can be explained by negotiations for a new trade treaty to replace NAFTA, and the restrictive monetary policies cited above.

The Mexican Stock Exchange — Photo: El Universal/ZUMA

The job market has also shown resilience in the slowdown, at least judging by the slowing rise in jobless rates (both nationwide and in cities) in late 2018. Those indeed are usually associated with seasonal factors like a reduction in formal job creation in those months. Yet the reality of this market is that it includes a very large population of underemployed or informal workers, or non-working, working-age people not registered as unemployed. Separately consumer confidence rose dramatically in December and January, which we can attribute in part to AMLO's new minimum wage policy and social aid programs for certain vulnerable sectors.

So there is a hybrid macroeconomic panorama for the first 100 days of the presidency. It combines production slowdown, subsiding inflation, a cheaper dollar and a slight rise in unemployment, with an unexpected rise in consumer confidence. One may state, cautiously, that nothing suggests any imminent crisis.

We can begin to separate the old from the new.

Critics had warned of the collapse of various economic indices with the new government, and this has not occurred. Social and political tensions that would inevitably come with a change of economic course after decades of neoliberalism, remain. But these are being processed peacefully and legally through contending social and political entities acting for or against AMLO's heterodox guidelines. There are no prospects for a showdown that will bring the institutions crashing down. With a bit of give and take, everyone seems to be finding their place.

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