As expected, left-wing candidate Andrés Manuel Lopez Obrador (AMLO) won the presidential election by a wide 30-point margin (53% of the vote count). His coalition now holds a majority in both chambers of Congress. In December, he will inherit a resilient, but underperforming economy. Unemployment has reached historical lows (3.4%) and the accelerating U.S. cycle drives industrial production. Yet red tape, corruption and soaring crime rates are weighing down on growth which is capped at +2.5%. Monetary policy is proactive and the fiscal responsibility framework is robust. Going forward, fiscal slippage should be rather constrained by institutions and by AMLO’s campaign promises. Yet exchange rate volatility and financial pressures should continue, as two risks remain: the NAFTA deal is unlikely to be renegotiated before 2019, and the liberalization of the energy sector is likely to be partially overturned by the new administration. Both risks prolong the “wait-and-see” mode of investors.
