Mexico: Trade balance surprises to the upside in April, details paint a bleak picture
May 25, 2017
April’s trade report showed exports growth easing to a six-month low of 3.6% in annual terms—well below the five-year high of 14.5% recorded in March—which pushed the value of Mexico’s overseas sales to USD 31.5 billion. The smaller expansion was reflective of a much weaker manufacturing sector, which accounts for about 90% of total exports. Feeble dynamics in factory exports drove non-oil overseas sales to a meagre 2.6% expansion. Meanwhile, oil exports also decelerated but continued to surge in April, increasing 26.9% on the back of a benign base effect.
Imports registered a 5.0% year-on-year decrease in April (March: +15.0% yoy), the result of a sizeable drop in non-oil intermediate goods imports. Imports totaled USD 30.9 billion, resulting in a USD 617 million trade surplus. This was a much better result than the USD 2,109 million deficit observed in the same month of last year and the USD 2,600 million deficit expected by market analysts.
In line with April’s result, the 12-month trailing trade deficit shrank considerably to USD 9.2 billion, notably below March’s USD 11.9 billion. Although this is the smallest deficit since July 2015, the weakness observed in key manufacturing exports spells potential trouble for the economic outlook. Several analysts among our panel expect manufacturing to spearhead growth this year as a weakened currency and surging inflation weigh on household spending.
The U.S. administration delivered a letter to Congress in mid-May notifying lawmakers of the White House’s intention to renegotiate NAFTA. This triggered a three-month notice period ahead of formal talks, which implies that negotiations among the three members could start as early as 17 August. The letter is consistent with the less belligerent trade rhetoric U.S. officials have used in recent weeks, and confirms President Trump’s earlier comments that the administration would aim to bring NAFTA “up to date through renegotiation.”
Author: David Ampudia, Economist