The US government's interest bill is skyrocketing. The U.S. government's fiscal outlook has become markedly worse in the last couple of months—not because of anything happening on Capitol Hill, but because of shifts in global bond markets. (Axios)

Long lines at gas pump unlikely, but Middle East crisis could disrupt oil supplies, raise prices. Fifty years after the 1973 Arab oil embargo, the current crisis in the Middle East has the potential to disrupt global oil supplies and push prices higher. But don’t expect a repeat of the catastrophic price hikes and long lines at the gasoline pump, experts say. (AP)

China prepares for Belt and Road summit in shadow of Israel-Gaza war. President Xi Jinping’s signature economic initiative has extended Beijing’s global reach. (Al Jazeera)

How global firms are reacting to the Israel-Hamas conflict. Companies ranging from airlines to banks have shut operations in Israel, asking their employees to work from home. (Al Jazeera)

Israel’s debt rating put on review for downgrade at Moody’s. Israel’s debt rating was put on review for downgrade at Moody’s Investors Service as the violent conflict with Hamas escalates. (Bloomberg)

Caution light for the Fed. Comments from Fed officials over the last month have had something of a "we're done here" tone to them—a sense that there is a good chance they may not need to raise interest rates again. The September data isn't cooperating. (Axios)

US equity funds suffer outflows on rising bond yields, geopolitical tensions. U.S. equity funds registered huge withdrawals in the week ending Oct. 18, hit by a surge in bond yields and escalating geopolitical tensions in the Middle East. (Reuters)

Global banking annual review 2023: The great banking transition. Banking profits are up, thanks to rising interest rates, but financial institutions globally need to reinvent themselves in the face of major structural and macroeconomic shifts. (McKinsey)

Trader’s case tests DOJ’s policing of global currency market. The trial of a London hedge-fund manager that starts Monday in Manhattan will test law enforcement’s ability to oversee the unregulated foreign-exchange market, which trades $7.5 trillion around the clock. (WSJ)

Higher-for-longer interest rate environment is squeezing more borrowers. Elevated inflation means central banks may have to keep policy rates higher in a way that stretches the capacity of borrowers to repay debt. (IMF)

Naira official rate sinks to near 1,000 on scramble for dollars. The naira slid to the brink of 1,000 per dollar in a fresh low in the official market thanks to a combination of central bank tolerance for a weakening currency and insatiable demand for the greenback. (Bloomberg)

Very thin budget: Forex shortage triggers cost-of-living crisis in Malawi. Malawi says its forex reserves are ‘nearly empty’. Its citizens say their pockets are emptying, too. (Al Jazeera)

Mexico: ALMO’s Influence Will Persist

PRS Group

Political attention is becoming increasingly focused on the June 2024 election to determine who will succeed President Andrés Manuel López Obrador (AMLO), who remains immensely popular at the start of his sixth year in office but is ineligible to stand for a second term. The JHH, a leftist alliance dominated by AMLO’s MORENA, has nominated Claudia Sheinbaum, who is currently serving as mayor of Mexico City, the same position that became AMLO’s springboard to the presidency. The opposition FAM has lined up behind Sen. Xóchitl Gálvez, a member of the conservative PAN, who was chosen based on the results of nationwide polling commissioned by the bloc.

The nomination of women by both main blocs all but ensures that Mexico will elect its first-ever female president next year, which will bring some excitement to what otherwise figures to be a contest lacking in suspense. The early polling data shows Sheinbaum favored by more than 45% of voters, while Gálvez is trailing far behind, at slightly more than 30%.

The JHH’s prospects in the legislative contests are just as bright. Recent polls put support for MORENA at 45%. If sustained through next year’s elections, that level of support would all but ensure a congressional majority for the JHH, which also includes the PT and the PVEM, but would still leave the governing alliance short of the two-thirds supermajority required to amend the constitution.

To the dismay of AMLO’s critics, a key element of his unexpectedly restrained fiscal strategy has entailed slashing the budgets of state institutions crucial to transparency and democracy, including regulatory agencies, the courts and police, and anti-corruption bodies. In a similar vein, the president has announced plans to present constitutional reforms that his successor will be expected to bring to fruition, including proposals for the direct election of members of the Supreme Court and the transfer of control of the National Guard from the civilian Public Safety Department to the military.

The proposals will undoubtedly figure prominently in Sheinbaum’s campaign, and will reinforce the perception that her presidency, assuming she wins, would be little more than an extension of AMLO’s tenure. That is a troubling prospect for the foreign investors who have been spooked by actions such as the expropriation of a privately owned rail line earlier this year.

Investors have also expressed frustration about a lack of clarity in the rules, which has become more pronounced as the president has increasingly involved himself directly in investment decisions while dismantling the regulatory apparatus.

The recently unveiled budget for 2024 points to a pre-election loosening of fiscal policy that could undermine confidence. Increased support for state-owned Pemex and generous spending on social programs are projected to swell the budget deficit to 4.9% of GDP in 2024, while the primary balance is forecast to shift from a small surplus this year to a deficit equivalent to 1.2% of GDP. The U-turn on fiscal policy is certain to draw scrutiny from ratings agencies (and the threat of a downgrade) that will create pressure for significant tightening by the next administration, to the detriment of medium-term economic performance.

Concerns about the shift in fiscal strategy could have a dampening effect on investment in the closing months of 2023 (the most recent currency and stock market figures are suggestive of weakening confidence), and the risks on that score will rise with the approach of election in the first half of 2024. On balance, real GDP growth is forecast to decelerate to a still decent 3% in 2023, before slowing to closer to 2% next year.

The analysis above is taken from the September 2023 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB.

 

Week in Review Editorial Team:

Annacaroline Caruso, editor in chief

Jamilex Gotay, editorial associate

Kendall Payton, editorial associate