A lack of public policy coherence is undermining investor confidence and will hold back economic prospects through mid-to-late 2020, the ratings agency Moody’s says in a new report.

Entitled Hesitant Investment, higher costs and trade tensions undermine Mexico’s growth prospects, the report said that concern about the government’s economic policy direction has lessened investors’ appetite to invest in the country.

“We forecast that Mexico’s real GDP growth will slow to 1.2% in 2019 and 1.5% in 2020, down from 2% in 2018, amid persistently weak private investment and a tight fiscal stance,” said Moody’s assistant vice president Sandra Beltran.

“Anxiety over economic policy has dampened investor sentiment and gross fixed investment remains relatively stable but has weakened, particularly for foreign direct investment,” she added.

The report said that higher wages will pose credit risks for a number of Mexican companies through 2020 and beyond and that environmental, social and governance risks will also increase.

“New laws granting greater freedom of association and collective-bargaining power to unions would further increase cost risks in labor-intensive industries such as automotive and mining,” Moody’s said.

Further threats to companies operating in Mexico that will also dissuade new investment include higher electricity costs, trade tensions and weaker domestic consumption.

“Exporters may face stress from trade uncertainties . . .” the report said.

Moody’s also cited the August Bank of México survey, which showed that 72% of private sector financial experts who were consulted by the central bank believe that it is currently a bad time to invest in Mexico.

Moody’s assessment of Mexico’s sovereign rating is currently at investment grade A3, higher than the other two major ratings agencies.

However, it cut its outlook to negative in June, which indicates that there is a one in three chance that a downgrade will follow.

Source: El Economista (sp)