- In February 2024, before the federal elections, President López Obrador (AMLO) unveiled a series of proposals to amend the Constitution. MORENA and its allies now hold a qualified majority –the number required to amend the Constitution— in the Chamber of Deputies with 364 seats (334 are needed for such a majority). In the Senate, the coalition is just one vote shy of a qualified majority. This means that President López Obrador could effectively have the necessary support to pass the reforms in September.
- The proposed constitutional reforms add a layer of uncertainty, particularly in relation to the rule of law and the stability of Mexico’s public finances. This comes at a time when the international scenario is fraught with complexities. The proposed judiciary reform undermines the rule of law and makes the law prone to arbitrary enforcement. Consequently, Mexico’s economic outlook could easily deteriorate more swiftly than anticipated.
- Ahead of the reforms, the economy is already poised to grow less than 2.0% in 2025. We expect both headline and core inflation to end 2025 at around 3.5% YoY. In this context of weakening activity and slowing inflation, Banco de México (Banxico) has continued cutting rates and we expect cuts in the last three meetings of the year.
- The above-mentioned context warrants a higher country risk premiums ahead. Credit agencies include both quantitative and qualitative factors in their assessment. The qualitative factors that credit agencies include are discretionary and can move the quantitative rating by one notch or more in the final decision. This is the reason why the potentially approved reforms could result in a negative watch for Mexico or increase the probability of a downgrade.
- We have held a negative view of the MXN since the beginning of 2024. We think that the recent climb in USDMXN is completely justified and, in our opinion, it could overshoot beyond 20.50. After the US elections, we would expect a consolidation at levels closer to 19.0, but we should bear in mind that the outcome might represent a dichotomic scenario for the Mexican currency.