Mexico: First woman elected as Mexico’s next president promises policy continuity but crucial questions remain

Event

On 2 June, Claudia Sheinbaum of the left-wing Movimiento Regeneración Nacional (Morena) was elected by a landslide as the next president of Mexico. Her election win is no surprise as she was comfortable leading every election poll. She will make history as the first female president of Mexico when she assumes office in October for a six-year term. As a protégé of the popular incumbent President López Obrador, she pledges to maintain his policies. Sheinbaum will be able to govern more comfortably than her predecessor: the Morena party and its allies will likely secure close to a two-thirds majority in both chambers in Congress. The preliminary election results even indicate that the next government will have the largest concentration of power of the past 25 years. This “super majority” will also enable the party to implement contested institutional changes President Obrador proposed in February, such as the dismantling of several regulatory organs and changes to the selection process of judicial and electoral authorities. Such changes could undermine the system of checks and balances in the government and pressurise indicators of institutional quality, which have already been declining over the past decade.

Impact

Though Sheinbaum has vowed to continue Obrador’s policies, she will face important challenges. First of all, Sheinbaum will inherit a large fiscal deficit, likely around 6% of GDP in 2024, which is the highest level since the late 1980s. Despite years of austerity (even during the Covid-19 pandemic), incumbent President Obrador, has ramped up social programmes and large infrastructure projects, especially in the past year, including train lines and an oil refinery. That being said, public finances remain relatively healthy with public debt at an estimated 56% of GDP at the end of 2024 and a fiscal deficit that is likely to shrink as of next year as the large infrastructure projects are expected to be finished by October.

Sheinbaum will also need to address the high levels of violence and crime as criminal gangs vie for control of drug and human trafficking routes despite the government’s militarisation of public security. Furthermore, as a climate scientist, Sheinbaum has also pledged to prioritise the green transition, in which she plans to invest almost USD 14 billion (around 1% of GDP). She will also need to invest in the creaking energy and water infrastructure, especially as Mexico is in the midst of an unprecedented water crisis. That phenomenon is likely to occur more often because of climate change.

On the economic front, Mexico has in recent years been benefitting from the strong economic growth in the USA. However, as the USA is heading into a soft landing, economic growth in Mexico is also slowing this year but remains robust at around 2.4%, which is around its decade-long average before the Covid-19 pandemic. Next year, real GDP growth is expected to fall further to 1.4%. In the medium term, Mexico could benefit from large opportunities due to huge interest from Western companies seeking to diversify supply chains away from China and from Chinese companies. Furthermore, the country has a free trade agreement with the USA (which will be reviewed in 2026). Nevertheless, potential disputes with the USA and Canada concerning Chinese re-exports are likely, especially if Donald Trump returns for another presidential term. Looking forward, it remains to be seen whether Sheinbaum will maintain the statist policies that have been detrimental to economic growth, and what her stance will be towards the private sector, which is another crucial factor for economic prospect.

Mexico’s MLT political risk rating has remained in category 3/7 for over a decade. The country’s good risk rating reflects its moderate external debt and rather low debt service ratios, sustainable – but deteriorating – public finances and economic diversification, despite its great reliance on the US economy. The ST political risk rating is strong, in category 1/7, and is driven by the high level of foreign exchange reserves and relatively low levels of short-term external debt.

Analyst: Jolyn Debuysscher – J.Debuysscher@credendo.com