Political Earthquakes: Key 2024 Elections in Emerging Markets and What it Means for Growth and Reforms

Three recent elections in India, Mexico and South Africa rocked financial markets but closer analysis suggests that growth and reforms may not be as weak as feared. In India (page 4) , after a decade in power, Modi and the BJP lost parliamentary majority and will form a coalition government with allies . Risks of slower reforms and consensual decision-making dragging derailing growth have risen or worse Modi not compromising enough to lose allies. We believe that India will still have steady hands that continue previous decade’s work and further progress is still possible, even if low hanging fruits such as trade liberalization and lower import duties are more likely to be implemented than land and labor reforms. We are constructive on India seizing its low debt, young demographic, favorable geopolitics and robust demand to continue to build more jobs to broaden growth. In Mexico (page 17) , the left-wing MORENA party and its allies won by a landslide. The political risk premium in Mexican asset prices will remain high but will not explode if AMLO and Sheinbaum convey a sense of pragmatism. Democratic institutions and the judicial system are likely to be eroded. But it is not clear that central bank independence and the fiscal anchor are at risk in the short term. In South Africa (page 8) the dominant ANC party lost majority and need to create a workable coalition with one of its three main contenders two of which are the left-wing populist movements , and one is a liberal historical opponent of the ANC associated (wrongly) with the White dominance of the apartheid years. The alliance with the latter is favored by most South Africans as well as by the financial markets as it would allow for a more business-friendly administration. The final decision should be taken before 16 June, the last day when the new National Assembly can elect the country’s president.