Macro Forum: The Street View



GDP rebounded in the third quarter up 0.9% on previous quarter and by 2.7% year-on-year. This recovery was driven by positive consumer sentiment following the election victory of Andres Manuel Lopez Obrador (AMLO) and also reflective of an industrial output increase after the announcement of a renewed NAFTA trade deal with the USA and Canada.

Inflation rose slightly in December by 0.7%, driven by higher prices for agricultural goods and by seasonal increases in air fares and vacation costs. This contributed to a full year increase of 4.8% but well down on the 6.8% inflation growth of 2017. However, there remains a concern that the outlook for inflation, the rates cycle and economic growth have worsened .The Bank of Mexico raised the overnight interest rate target to 8.25% from 8% on Dec 20th, its highest level since Jan 2009 with signs that there are more rises to come. On the brighter side the rate cycle and declines in similar duration US rates has increased the profitability of the peso carry trade. The currency outlook was further boosted by the announcement of a 2019 budget surplus of 1% of GDP.This would be achieved through a $287bn “austerity” spending package.


Before taking office, AMLO had seriously upset financial markets by announcing the cancellation of construction of a partially built $13bn new Mexico City airport. As a result, the Peso weakened significantly, falling to a four-month low, trading down at 19.67 against the dollar. The following two months saw a stand-off between airport bondholders and the AMLO administration.

This was resolved late December when the majority of bondholders accepted the governments offer to buy back $1.8bn dollars of debt used to fund the airport build. This allowed the government to avoid a mandatory repayment of all $6bn in bonds that would have been necessitated through cancellation of the airport. As a result, the Peso gained 1.2% to a six week high. AMLO has announced that the bond deal cleared the way for the development of a nearby military airport, Santa Lucia, to serve as a second airport hub for Mexico City.


The Stock Market Index remained downbeat throughout the quarter on whether the new government would be able to manage the economy and on general concerns over global growth and trade. The BMV IPC stock index lost 15.89% in the fourth quarter.









Real GDP Growth

Source: International Monetary Fund

Mexico FX vs FV

Source: Bloomberg Spot Prices and Actis methodology for Fundamental Value


Source: International Monetary Fund


Nicolas Escallon

Please contact Nicolas Escallon by email at


Andres Manuel Lopez Obrador
Last Election
Next Election
2024 TBD

Latest ArticlesView all