Mexico: Trade deficit narrows but exports begin Q4 on weak footing
October 26, 2016
October data provided a glimpse into the situation of trade at the beginning of the fourth quarter. Exports totals USD 32.6 billion in October, which represented a 4.4% year-on-year contraction. The plunge contrasted a 1.3% increase in September and reflected mainly a plunge in exports of manufactured goods. Imports fell 5.9% annually in October to USD 33.5 billion, which contrasted a 1.7% increase in September. The decrease in imports stemmed from a decline in overseas purchases of consumption, intermediate and capital goods.
According to the National Statistics Institute (INEGI), Mexico’s trade deficit totaled USD 900 million in October, which narrowed from both the previous month’s USD 1.6 billion deficit and the USD 1.5 billion shortfall from a year earlier. Also, October’s gap fared better than the USD 1.7 billion deficit the markets had expected. The narrower-than-expected deficit brought the 12-month trailing shortfall to USD 15.7 billion in October (September: USD 16.3 billion deficit), which marked the smallest in nine months.
Mexico’s trade deficit has widened over the past two years as the plunge in crude oil prices caused oil production—and exports—to decline, at the same time as imports of natural gas, gasoline and diesel have increased, mostly from the U.S. The Central Bank expects the trade deficit to end this year at USD 15.2 billion (about 1.5% of GDP), while it projects a smaller deficit in 2017 (USD 12.6 billion). The Bank’s projections acknowledge the risk that the administration of President-elect Donald Trump could adopt policies that jeopardize cross-border production chains. Still, the Bank’s baseline scenario is that trade ties between the two countries will continue to work well.
The peso’s roughly 40% depreciation in the past two years has provided little support to manufactured exports, partly because Mexico imports many of the components and intermediate goods it uses for final assembly. Trump has not yet made any statements about his proposals to renegotiate the North American Free Trade Agreement (NAFTA), despite announcing his intention to order a U.S. withdrawal from the Trans-Pacific Partnership (TPP) when taking office in January. Moreover, the Mexican government has stated that it will discuss a new agenda regarding the bilateral relationship once Trump takes office, including “sensitive issues” for both sides.
Author: Ricardo Aceves, Senior Economist