Mexico's outlook as Trump nears 100-day mark
The risk of increased tension and a deterioration in relations under the Trump government will remain high in Mexico and across Latin America. The policies pursued by the U.S. president in areas such as trade and immigration will have an important bearing, particularly in Mexico, although current developments suggest that Trump is not likely to follow through on some of his more radical campaign pledges, while the renegotiation of NAFTA that he announced after being sworn is likely to lead to adjustments to the agreement rather that its total termination.
Although policy uncertainty in the U.S. caused consumer and investment sentiment to deteriorate markedly at the beginning of this year, Mexico’s economic activity has shown more resilience than initially expected. In January, the monthly proxy GDP (IGAE) accelerated to a 3.0% expansion, buoyed by solid growth in agriculture and services. In addition, the weakness of the peso, along with the ongoing improvement in global demand, has had a welcome effect on Mexico’s external sector, boosting merchandise exports in the first two months of the year. In other positive news, U.S. trade rhetoric toward Mexico has substantially moderated in the past weeks, alleviating concerns of a potential imposition of trade tariffs by the U.S. government on Mexican exports. Moreover, a record transfer of excess funds from the Central Bank to the government bodes well for strengthening public finances and the government’s fiscal consolidation efforts going forward.
Against this backdrop, we sat down with Ricardo Aceves, Senior Economist for Latin America, to get his perspective on a variety of topics important to Mexico this year.
FocusEconomics: What strengths and weaknesses do you see for Mexico’s GDP in the domestic and external scope this year and the next?
Ricardo Aceves: The economy has various internal and external strengths. The country’s greatest internal strength is household consumption, which is still solid despite having decelerated slightly in Q4 2016. That said, consumers’ real wages are beginning to feel the impact of inflation. The inflation rate we’re now seeing (5.4% in March – the highest level since July 2009) is the result of the gasoline price hike in January and the secondary effects of the depreciation of the peso on the prices consumers pay for goods and services. In terms of the external environment, exports are experiencing a rebound thanks to the weakness of the peso, higher demand for Mexican goods, and a general improvement in global trade.
However, as we well know, what the trade relationship between Mexico and the United States will look like in the future is highly uncertain. Although the Trump administration’s tone regarding the U.S.’ relationship with Mexico has been more conciliatory in recent months, negotiations with China recently along with the administration’s unpredictable foreign policy, show that Trump should be taken seriously and that serious negotiations are going to take place in order to come up with a trade agreement that favors the U.S.
FE: Could faster inflation in Mexico prompt a more dynamic monetary policy that would affect GDP?
RA: Banxico raised the monetary policy rate by 25 basis points to 6.5% in March with two aims: to anchor inflation expectations and to "dance at the same pace as the Fed." The Central Bank was very clear in its last decision: future movements in the interest rate will be subject to the behavior of inflation as well as the expectations economic agents have of it, as well as the movements in interest rates in its neighbor to the north. It remains to be seen if in the coming months Banxico will actually keep pace with the Fed. However, high anticipation of interest rate hikes last year will prove to provide the Bank with some maneuvering room to disassociate itself from the Fed. The recent increase of 25 basis points instead of 50 as in the previous meeting reflects Banxico’s more complacent opinion regarding the outlook for inflation and current exchange rate dynamics.
FE: Do you think that the U.S. and its commercial policy have ceased to be a risk for the Mexican economy?
RA: U.S. trade policy is no longer a short-term risk to the economy. The exchange rate is the barometer to determine whether or not Mexico’s economy is out of danger in terms of Trump’s rhetoric or his-yet-to-be-defined trade policy with Mexico. That said, the Mexican economy is not completely out of danger as uncertainty remains high regarding the future of U.S.-Mexico relations and this is causing more volatility in the peso.
FE: Do you think Mexico’s commercial diversification process is a viable project?
RA: The process of commercial diversification, more specifically the diversification of markets for Mexican exports, is a viable project, but it will nonetheless take a long time to complete. China has been very interested lately in having a closer trade relationship with Mexico, and neighbors in South America have spoken up about Mexico turning to those markets.
Although Mexico's economy has shown resilience of late, uncertainty is still high in Latin America's second largest economy. Keep checking back with FocusEconomics for the latest news and forecasts for the Mexican economy as well as 126 other countries and 33 key commodities. You can download a sample of one of our FocusEconomics Consensus Forecast reports by clicking on the button below.
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Date: April 18, 2017
TagsMexico Bitcoin Investment Gold South Africa Base Metals Commodities Nordic Economies Italy Trade Emerging Markets Forex Cryptocurrency Tunisia Russia Vietnam Consensus Forecast IMF Infographic Housing Market Spain Company News precious metals Healthcare Brexit Agricultural Commodities United Kingdom G7 Portugal Commodities MENA Canada USA Inflation Euro Area Eastern Europe Greece TPP Banking Sector Turkey Energy Commodities Latin America United States France UK India Precious Metals Commodities Germany Major Economies Argentina Oil Ukraine Sub-Saharan Africa European Union OPEC Brazil oil prices China Economic Growth (GDP) Australia Japan Asia Colombia Unemployment rate Venezuela Iran Africa Exchange Rate
36 minutes ago
Chile’s economic prospects revised up this month and growth is seen accelerating thanks to a turnaround in investme… https://t.co/CpvGNmmTDH
42 minutes ago
1 hour ago
Colombia’s economy should enter the recovery phase this year, thanks to stronger domestic demand and an upturn in c… https://t.co/uEIWkYoms9
1 hour ago
Argentina expected to grow at a solid pace this year and next thanks to a sharp expansion in fixed investment and s… https://t.co/A5rgrmHy5R
1 hour ago
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- How Student Loan Debt Affects the Economy
- Elections in Russia: Analysis and Implications
- 2018 & 2019 Economic Outlook for the Top Oil Producing Countries
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- The Poorest Countries in the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Gold: The Most Precious of Metals (Part 3)
- Venezuela's Electoral Conundrum
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- China’s growing influence on the Latin American economy
- Top Economics & Finance Blogs of 2018
- How Latin America emerged from recession in 2017
- Is this the beginning of the end for Bitcoin?
- Emerging Markets 2018 Economic Outlook
- Risks and Opportunities for 2018 - Daniel Lacalle
- The role of FDI in Vietnam’s socio-economic development
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- The World's Top 10 Largest Economies
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit