The Mexican economy is posting its 10th quarter of uninterrupted growth. According to the Institute of Statistics's advanced estimate, the first quarter's evolution was 0.2% compared to the previous quarter and 2.0% over one year (seasonally adjusted).
The country is going through a difficult time. With interest rates expected to remain relatively high in the United States and persistent inflation in Mexico, at 4.4% in March, the Mexican Central Bank's room for manoeuvre is narrow. Although it first lowered its key rates in March, they remained at 11.0%. This high level makes credit expensive and weighs on the ability of Mexicans to borrow and the economy as a whole.
Under normal conditions, Banxico would, therefore, hasten to lower its key rates to revive the economy. Only here: a too-rapid fall in policy rates at a time when the Fed advocates stability would result in a reduction in the rate differential against the United States and, more than likely, a peso that would leave some feathers, destabilising investors. This is especially the case since, a few weeks before the general election scheduled for June 2, populist promises follow one another.
While waiting to see more clearly, investors are sticking to their positions
Since the beginning of the year, the Mexican market has changed relatively little (+2% in € only). However, the country retains excellent potential beyond the turbulent months ahead, including that the Mexican and US elections will not fail to impact investors' appetite for Mexican assets.
In the medium and long term, it will continue to benefit from the United States' willingness to reduce its dependence on China and shorten supply chains.
As part of our neutral and dynamic portfolios, we recommend investing in Mexican equities, and we invite you to participate in this strategic decision.