Weekly Report - 16 August 2018 (WR-18-32)

MEXICO | Moody’s remains positive on Mexico. The international credit ratings agency Moody’s released a generally positive economic outlook for Mexico on 13 August. According to the report, Mexico will enjoy largely stable corporate credit quality following the inauguration of President-elect Andrés Manuel López Obrador in December, and low single digit GDP growth is forecast for 2018-2019. The fiscal deficit is also predicted to remain relatively stable.
          However, Moody’s cautioned that possible changes to energy policies could increase risks for the oil and gas industry, while uncertainty surrounding the new administration and the ongoing renegotiation of the terms of the North American Free Trade Agreement (Nafta) could lead to more volatile financial markets.
        The agency believes that the incoming López Obrador administration will likely hand over construction of a new Mexico City international airport (NAICM) to the private sector rather than cancelling it. López Obrador has expressed misgivings about the US$13bn NAICM project, which is currently under construction, considering that it does not represent value for money. He has presented alternative projects and said that he will submit the matter to a binding public consultation before making a final decision.
           Meanwhile, in a separate report released on 7 August, Moody’s predicted that the incoming López Obrador administration will increase public borrowing in order to boost domestic economic growth. But it expressed confidence that Mexico’s development banks boast strong quality indexes and a high level of capital, which will allow their financial fundamentals to remain unaffected if borrowing is increased at a sensible rate.