To access the full paper, download the PDF on the left-hand sidebar.
Introduction
Four factors are likely to drive Mexico’s outlook for 2021. The first is the government of Mexico’s (GOM) current path regarding politics and policy. Politically, we expect the GOM to continue to 1) centralize power in the presidency and 2) weaken institutions that provide checks and balances on the government. From a policy standpoint, we expect the GOM to 1) disincentivize private and foreign investment in favor of state monopolies and 2) prioritize policies that seek wealth and income redistribution over the creation of conditions for economic growth. In the short term, these actions will send a clear signal to investors and companies about the government’s behavior, but over time they will also introduce a higher degree of risk as government decision-making becomes more politically centralized and arbitrary and more punitive toward private investment. Consequently, the GOM’s approach in the medium term will have important impacts on private and public investment, fiscal policy, social polarization and unrest, and the state of the country’s institutions in general, from political parties to regulatory agencies.
The government’s inaction will also be a crucial factor in 2021. For example, conditions are not likely to improve in the area of public safety and security due to the administration’s reluctance to confront crime and violence or engage justice demands head-on. And the government’s unwillingness to craft an effective financial package to aid businesses and families struggling through the COVID-19 pandemic will make the post-pandemic recovery slower and more difficult.
The second factor driving Mexico’s 2021 outlook is the cumulative effect of COVID-19. The pandemic has delivered an enormous shock to the Mexican economy. The full impact is not yet known, but it is likely to be worse than in most countries—especially because policymakers in Mexico did not react swiftly to soften the blow to the economy and the job market. On the contrary, current policy has caused a steeper economic fall in Mexico than elsewhere, and the recovery to recede further into the horizon. So far, Mexico seems to have bet on herd immunity as an unspoken strategy against the pandemic. This approach will cause much death and pain. The early months of 2021 are shaping up to be devastating for Mexico’s public health and economy.
A third factor is the midterm election scheduled for June 2021. These elections will be decisive, defining Mexico’s political and policy landscape through at least 2024. In the lead-up to Election Day, there is likely to be some degree of election interference by the government in favor of MORENA, President Andrés Manuel López Obrador’s party. At the same time, the opposition is still largely in disarray. Although there are now signs of reorganization, its efforts to present a united front may not be enough, or have been initiated in time, to keep the president from retaining control of Mexico’s Congress.
Finally, although the U.S. elections are not a domestic issue for Mexico, they will impact the binational relationship and the GOM’s ability to maneuver in the public policy arena. This will be particularly true in 2021 because, with President Trump out of office, the López Obrador administration will lose an important pillar of support for its approach to the country’s political economy. In addition, a Biden administration will seek to enforce Mexico’s commitments to the United States-Mexico-Canada Agreement (USMCA) and press for cooperation on security and immigration matters in ways that the López Obrador administration may not find palatable.
This Mexico Country Outlook examines these and other issues to watch for in 2021. It lays out possible scenarios based on the four broad variables above, emphasizing areas of concern for business and investors.
