Mexico Watch: tourism boom; economic resilience to be tested

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Wednesday, February 14, 2018

Record tourism bolsters Mexico in 2017

Defying record crime, two deadly earthquakes and economic uncertainty, tourists injected US$21.3bn into the Mexican economy in 2017, according to central bank data.

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The result represents the fifth consecutive year of record highs with a sharp increase from the US$12bn recorded in 2010. The bank also reported a spike in the number of foreign tourists to 39mn, nearly doubling the level recorded a decade ago.

Tourism minister Enrique de la Madrid Cordero has said he expects Mexico to break into the top ten countries worldwide for receiving tourism dollars, as reported by the UN World Tourism Organization, by this year or 2019, having listed as #14 in 2016.

The average foreigner tourism spend, however, fell below the three-year average in 2017 to US$5,849 per person, though up from the 2014 spend of US$5,830.

National tourism business council (CNET) expects tourism dollars into Mexico to reach US$23.87bn in 2018.

Pictured: Tourists enjoy the beach in Tulum National Park, Quintana Roo state, Mexico in 2017.

Fitch: Mexican resilience to be tested in 2018

Fitch Ratings, in a recent investor comment, asserted that Mexico would maintain its moderate pace of economic growth and fiscal consolidation in 2018, despite key downside risks ahead.

"Our base case remains for continued overall macroeconomic and fiscal resilience, although downside risks remain, given uncertainties associated with Nafta negotiations and the Mexican 2018 election cycle," said the ratings agency.

"Mexican macroeconomic and fiscal data from 4Q17 were in line with Fitch's expectations for a continuation of moderate growth and improvements in fiscal and external accounts," noted the agency.

Fitch also hailed the primary surplus achieved in Mexico last year, the first since 2008 in changing its outlook on Mexico's rating to 'stable' from 'negative' last August.

"Moreover, the authorities prudently used the [one-off 2016 surplus] from the central bank to buy back debt and reduce borrowing in the domestic and external markets and increase the deposits at the stabilization funds," said the agency.

Fitch added it expects the government to meet its fiscal deficit goals for 2018, marking the end of the fiscal consolidation cycle under the current administration; however, it added that weaker than anticipated growth and the election cycle pose downside risks.

"While Mexico's growth trend should remain stable in 2018, challenges preventing a significant acceleration in GDP growth will remain. The uplift from falling inflation and robust external, primarily US, demand is countered by subdued investment amid ongoing concerns about the future of Nafta and the 2018 elections along with ever tighter monetary policy."

Fitch added that Nafta negotiations would not significantly affect the trading relationship between the US and Mexico and that the eventual deal is unlikely to seriously damage Mexico's export competitiveness, even with likely changes to the treaty.

"However, a prolonged negotiation process could still negatively affect investment and growth in the near term. While the risk of an abrogation without a replacement treaty remains low, it is possible," said Fitch.

That said, the general election in July, noted Fitch, could add to long-term policy uncertainty.

"[Andrés Manuel] Lopez Obrador, a left-leaning candidate, continues to lead opinion polls for the presidency although Ricardo Anaya of the National Action Party has begun to rise in polls. An Obrador administration may mark a departure in policy, for instance, by influencing the pace of reform implementation in key sectors and/or reprioritization of public spending," said Fitch. "However, as he is likely to face an opposition-dominated Congress, and other institutional checks and balances, any major policy reorientation would likely take time to unfold."