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JPMorgan On Mexico Mid-Terms

MEXICO
  • As things stand, status quo will remain in place for governing party Morena, continuing to hold a relative majority and a simple majority of 55% taking allies into account.
  • Despite being 12 points short of the constitutional majority to push a more aggressive legislation, this does not mean Morena will fail to consolidate its power across the country, especially as the party may likely gain five more states than held previously. AMLO's approval rating also stands firm at 61%, despite the economic downturn.
  • While they remain concerned on recent backtracking on economic reforms (particularly the energy and labor reforms), which continue to jeopardize mid- and long-term investment plans, a divided Congress and partial state-level victories for Morena could pave the way for more accountability and, potentially, a more pragmatic AMLO. They cannot downplay, however, the risk of a more confrontational stance from the incumbent government in case the opposition bloc surprises to the upside.
  • For Morena, maintaining at least a simple majority in the Lower House is of the essence given that this Chamber alone votes on the annual Expenditure Bill. JPM believe Morena will bring programmable spending to a new multi-year maximum this year, contrary to the public perception that Morena is an austere government. This, altogether with improving prospects for the post-pandemic economic recovery, will represent important events that might benefit the President ahead of the recall referendum in 2022.
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