5 things: What to expect for Mexico's economy in  2019

5 things: What to expect for Mexico's economy in 2019

Economist Christopher Thomas answers some questions regarding Mexico’s economic outlook for 2019 in the wake of the announcement of the new United States-Mexico-Canada Agreement (USMCA) and as President-elect Andrés Manuel López Obrador (AMLO) prepares to take power later this year.

1. How does Mexico’s growth outlook change taking into account the new trilateral agreement USMCA?

Since negotiations began just over a year ago, analysts have been confident that the pact would survive largely intact—and this remains the case. Having already priced-in a successful rewrite of the trade deal, few analysts are expected to significantly modify their outlook on the news. Moreover, the NAFTA renegotiations always carried asymmetric risk; little upside if successful and considerable downside if not.

2. Will the start of AMLO’s new government provide a source of uncertainty that could offset any positive impact of the USMCA?

Although AMLO’s new left-wing administration is indeed a source of some uncertainty, his posture on the trade talks prior to taking office greatly eased investors’ concerns. As it stands, he is unlikely to rock the boat on the USMCA and is seen signing the renegotiated NAFTA when it eventually reaches his desk. Moreover, his popularity has given him a unique opportunity to tackle badly-needed reform, and both voters and analysts remain optimistic.

3. What are the main positives and negatives regarding Mexico’s economy that could affect the growth outlook for 2018 and 2019?

Household spending has been positive, as it has remained buoyant this year in line with the tight labor market and a strong U.S. economy; it has contributed to upbeat remittance inflows and is likely to continue to do so. In terms of weaknesses, despite the newly-signed USMCA, this year’s pullback in global trade hangs over the external sector.

4. The IMF estimates that Mexico's GDP growth will reach 2.3% in 2018 and 2.7% in 2019. What are the chances that they maintain this growth outlook when they launch their latest World Economic Outlook this month?

Although greater political and economic certainty in light of AMLO’s election victory and the newly-signed USMCA could push them to maintain their upbeat growth forecasts, we believe they are more likely to downgrade their outlook and bring their projections closer in line to our Consensus of 2.2% growth in 2019 (LatinFocus, September 2018). That said, if they were to cut their growth forecasts, we believe it would be modest—and in an effort to address weaker underlying fundamentals.

5. What can we expect for U.S.’s growth outlook for 2018 and 2019?

Growth in the U.S. is expected to remain buoyant next year but is likely to moderate as last year’s tax cuts dissipate, and higher interest rates tap the brakes. A full-blown trade war with China clouds the outlook, however. Still, solid growth stateside bodes well for Mexico’s growth prospects. FocusEconomics panelists see the U.S. growing 2.5% in 2019, after the robust 2.8% growth observed this year.

Further reading:

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Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.

Date: October 8, 2018

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