Mexico: Eyes on trade

11/23/2016 - Report
ic_blogtagNigeriaPhilippinesThailandHungaryMexicoCanadaEurozoneTrade

Weekly Export Risk Outlook 
 

​The outcome of the U.S. elections has brought Mexico into focus. The MXN depreciated by -22% in the first three days after the election. Banxico raised its key interest rate last week by 50bps to 5.25%, the upper limit of market expectations, and will move forward the timing of tightening in response to the new scenario. An increase in long-term interest rates looms as upcoming price pressures may push inflation over the target range. Private consumption and investment will bear the brunt of diminishing purchasing power and restricted access to credit. 

With regard to trade, Mexican exports play a key role in U.S. value chains, most notably in the automobile industry. This in turn lowers production costs and increases the competitiveness of final products. Mexico is the third largest import partner of the U.S. and 81% of Mexican exports went to the U.S. in 2015, representing 27% of Mexican GDP in relative terms. Vice versa, U.S. exports to Mexico have increased by +5.6pps since NAFTA entered into force in 1994. Changes in trade relations between the two partners would need to be carried out within NAFTA and would require ratification from all member parliaments.

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