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Mexico: uncertainties following the us elections

12/12/2016

Donald Trump’s anti-trade and anti-immigration rhetoric has been very detrimental to Mexico, with the peso depreciating markedly since his election. The potential renegotiation of NAFTA and the upcoming US immigration policy will be critical to the country. At the end of the day, both external and domestic factors point to a sharp slowdown in Mexico’s real GDP in 2017.

TRANSCRIPT // Mexico: uncertainties following the us elections : December 2016

FRANCOIS DOUX

We talk now about a country that is quite concerned about the turn in US foreign policy. That is Mexico. 81% of exports from Mexico are going to the US. To talk about this, we are joined by Sylvain Bellefontaine. Hello Sylvain. First question: What has been the impact of Donald Trump’s election on the Mexican indicators?

 

SYLVAIN BELLEFONTAINE

First of all, emerging markets as a whole have turned red since the election due to the rally on the US markets. But Donald Trump’s anti-trade and anti-immigration rhetoric during the campaign has been very detrimental to Mexico. The peso started to depreciate even before the election, in May, when Donald Trump’s contenders abdicated. Since the election, the peso has depreciated by 11%.

 

FRANCOIS DOUX

This also reflects a lack of confidence of foreign investors towards the Mexican economy, doesn’t it?

 

SYLVAIN BELLEFONTAINE

Yes, definitely. Markets and investors hate uncertainty which increases volatility and procrastination. But in my view, Mexico benefits from some trump cards to withstand the potential crisis, notably low labour costs and the cheap peso that reinforces its competitiveness and attractiveness for foreign investors.

 

FRANCOIS DOUX

Second question: Donald Trump’s ambitions regarding the foreign trade aren’t that clear for now. What indicators will you monitor about Mexico in the coming months?

 

SYLVAIN BELLEFONTAINE

The potential renegotiation of NAFTA and the US immigration policy will be critical for Mexico in the coming months and years. Now campaign promises can be different from the real politics. Donald Trump needs the support of the Republican majority in Congress. And we know that the doctrine of the Republican Party is pro-free trade. Let’s wait and see.

 

FRANCOIS DOUX

Third question: The Mexican economy might slow down anyway in 2017. What do you think of that?

 

SYLVAIN BELLEFONTAINE

I think that the FX passes through to inflation. It will lead to monetary tightening. The fiscal policy will remain restrictive and at the same time the oil sector is in very bad shape. At the end of the day, investment should decline slightly. Private consumption will slow markedly. As for exports, I’m not very sure. It depends on the policy implemented by the US administration on trade, taxation and spending.

 

FRANCOIS DOUX

Last question: the consensus for GDP 2017 of Mexico is 1.8%. What do you think of that?

 

SYLVAIN BELLEFONTAINE

It sounds optimistic in my view.

 

FRANCOIS DOUX

Thank you very much.

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