The coronavirus is gutting economies around the world, but the damage is proving particularly damaging in Mexico, a country that was already in slump before the pandemic hit.
Analysts are now sounding the alarm over Mexico’s financial stability, with Fitch downgrading the country’s sovereign debt to its lowest investment grade above junk bond status. The ratings agency cited both the coronavirus lockdown and the government’s “ad hoc policy interventions” as contributing factors.
Moody’s followed suit, downgrading Mexico’s rating and citing lower growth potential, the administration’s change in energy business model and policy decisions over the last year “dampening business sentiment and investment prospects.”
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President Andrés Manuel López Obrador’s management style has rattled investors since he took office in 2018, contributing to a stagnant economy even before the arrival of the deadly coronavirus forced the economy to shut down.
“Normally, what markets and analysts want — and in this case also credit rating agencies — is that a certain economic orthodoxy be followed, that you can have a certain stability in your fiscal and economic policy decisions,” said Rodrigo Pérez-Alonso, a financial analyst and former member of Mexico’s Congress.
But under the left-leaning López Obrador, he said, there has been a surprising reluctance to ramp up public spending to help weather the coronavirus storm.
López Obrador’s refusal to suspend tax payments or provide private enterprise with a stimulus package — measures that the U.S. embraced last month — has furthered the growing rift between the government and the business community.
His administration was slow to respond to the coronavirus, leaving states to pick up the slack, but López Obrador has since acted on the recommendations of Hugo López-Gatell, the epidemiologist in charge of the government’s public health response to the pandemic.
As of Friday, the country had about 6,300 coronavirus cases and nearly 490 deaths.
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López Obrador has refused to take major actions to keep the economy afloat, while protecting the federal budget assigned to his pet projects.
Some of those projects include canceling a $13 billion Mexico City airport project that was 30 percent finished, only to announce construction of a new airport at a different location. He also nixed oil field auctions in favor of a new government-owned refinery in his home state of Tabasco.
Investors were particularly rattled last month when López Obrador unilaterally canceled a nearly finished billion-dollar brewery owned by Constellation Brands, which markets Corona beer in the United States.
And despite plummeting industrial exports, falling remittances and a frozen tourism industry, López Obrador has shunned proposals to inject cash into the economy.
The latest projection from the International Monetary Fund is for Mexico’s economy to contract 6.6 percent this year, outpacing the estimated 3 percent contraction for the global economy.
A downturn of that magnitude is likely to spur more migration to the U.S., where the economy has ground to a halt.
Manuel Suárez Mier, an economic consultant who is predicting a double-digit contraction in Mexico, said increased migration is inevitable.
“You will have a massive exit of people,” he said, adding that the situation won’t be much better for those who stay.
“When Mexico loses its investment grade, all the pension funds and many corporations who have investments in [Mexican] public or private bonds will have to drop them, because regulations compel them to not buy junk bonds,” he said.
But Mexico’s financial institutions are stronger now, largely as a result of reforms undertaken after the cyclical economic downturns that plagued the country from the 1970s into the 1990s.
A major factor in those crises, according to Suárez Mier, was the weakness of the central bank, Banco de México, and the peso’s controlled exchange rate, which put at risk the country’s international reserves.
This time around, López Obrador can lean on an autonomous Banco de México, with international reserves of more than $180 billion, and standing lines of credit from international financial institutions like the IMF.
In response to Friday’s credit rating cuts by Fitch and Moody’s, Mexico’s Finance Secretariat touted the country’s still-ample lines of credit.
But just a day earlier, López Obrador met with Banco de México chief Alejandro Díaz de León Carrillo on Thursday, asking the central banker to accelerate central bank payments due to the federal treasury next year. Despite the unorthodox request, López Obrador said he remains committed to the bank’s autonomy, adding that he wants to see the country through the crisis without increasing public debt.
That will prove nearly impossible, as ratings agencies and international financial institutions have predicted the recession will increase Mexico’s sovereign debt by at least 2 percent of the country’s gross domestic product (GDP), from the relatively healthy 53 percent where it stands now.
That’s a debt-to-GDP ratio the United States hasn’t seen since 2001, when public debt stood at 54.8 percent. The current U.S. debt ratio is 106.9 percent, and expected to grow due to coronavirus relief packages.
López Obrador has remained relatively upbeat and dismissive of external warnings.
On Thursday, he shrugged off concerns about his economic plan, saying critics were only trying to “discredit” Mexico and his administration.
“He has his own script,” said Pérez-Alonso. “He’s like an actor onstage with the theater burning, but he wants to follow his script.”
“The issue is that he’s starting to smell the fire, and realizing it isn’t going to be so simple,” Pérez-Alonso added.
OTTAWA – Statistics Canada says retail sales rose 0.4 per cent to $66.6 billion in August, helped by higher new car sales.
The agency says sales were up in four of nine subsectors as sales at motor vehicle and parts dealers rose 3.5 per cent, boosted by a 4.3 per cent increase at new car dealers and a 2.1 per cent gain at used car dealers.
Core retail sales — which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers — fell 0.4 per cent in August.
Sales at food and beverage retailers dropped 1.5 per cent, while furniture, home furnishings, electronics and appliances retailers fell 1.4 per cent.
In volume terms, retail sales increased 0.7 per cent in August.
Looking ahead, Statistics Canada says its advance estimate of retail sales for September points to a gain of 0.4 per cent for the month, though it cautioned the figure would be revised.
This report by The Canadian Press was first published Oct. 25, 2024.
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
