Fitch: Broad Policy Continuity Expected Under Pena Nieto

NEW YORK--(BUSINESS WIRE)--

Mexican voters Monday chose Enrique Pena Nieto of the Partido Revolucionario Institucional (PRI) as their president, but, despite a new administration, Fitch Ratings expects broad policy continuity will anchor macroeconomic stability. We note Mexico's political institutions have strengthened, allowing for a smooth transition of power.

We believe Pena Nieto will inherit a resilient economy in December 2012, with Fitch projecting GDP growth of 3.5% this year. Economic performance is underpinned by the expanding industrial production, recovery in consumer credit, and moderate inflation. International reserves are at historically high levels, supporting the country's shock-absorption capacity.

We also note that Mexico's growth momentum is closely tied with the performance of the U.S. economy, with downside risk mostly stemming from softer U.S. growth or increased risk-aversion related to the Eurozone crisis.

Congressional elections were also held. We will continue to monitor outcomes in its makeup and resultant cabinet positions that will be important in determining success regarding Nieto's legislative agenda. In recent years, the lack of a majority in the Mexican Congress has aggravated gridlock on economic reform.

Historically, most Mexican reforms have materialized early in the term of a new president. As such, the next year to year-and-a-half provides an ideal window of opportunity to the incoming administration to pursue economic reforms aggressively, especially given that mid-term Congressional elections are now three years away. While Pena Nieto has expressed willingness to pursue some economic reforms, strong leadership, a proactive negotiation stance with the opposition and unions will be important for achieving success.

The need for both structural and institutional reform is evident in light of the relatively modest economic growth performance of the Mexican economy and the increased drug-related violence levels. Progress on reforms that increase fiscal flexibility, open the oil sector for additional private investment, and improve the overall competitiveness would be positive for the Mexican economy. We also believe that a strategy to reduce violence will also be important for bolstering investor confidence and improving business and investment environment of the country.

A new administration allows for a reexamination of structural impediments facing the economy. Again, while we believe that Mexican economy's resilience to the increasing external headwinds is positive, there are clear challenges remaining.

For more information on this topic, please see our special report entitled, "Mexico's Electoral Cycle Neutral for Creditworthiness," published on May 15 and available at www.fitchratings.com.

Additional information is available on www.fitchratings.com.

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