World Economy

Trump a ‘Horror Film’ for Mexico Economy

Trump a ‘Horror Film’ for Mexico EconomyTrump a ‘Horror Film’ for Mexico Economy

Bank of Mexico’s governor has warned that Donald Trump could be a “horror film” for the nation. Analysts say the country’s economy is in for a nightmare even if the incoming president doesn’t build that wall or ball up NAFTA.

Surely, Trump’s ability to alter relations between the nations will play a major role in how Mexico’s economy performs in 2017, but the country had its work cut out for itself even before he prevailed, as problems from a weakening currency to faster inflation look certain to deliver a third straight year of slowing growth, Bloomberg reported.

Economists forecast gross domestic product will expand just 1.7% this year, according to the latest surveys from Banco de Mexico and Citi/Banamex, as anticipated rate increases weigh on borrowing and spending. That’d be the slowest since the 1.4% achieved in 2013.

 “It’s going to be a very difficult year for policy makers,” said Benito Berber, the senior economist for Latin America at Nomura Holdings Inc. in New York. “The central bank will have to navigate a lot of different shocks, external and internal.”

While forecasts are more dire at Credit Suisse Group AG and Bank of America Corp.—where economists anticipate growth could be the slowest since the height of the financial crisis—any threat to the North America Free Trade Agreement that started Jan. 1, 1994, would make these seem rosy. Mexico sends more than three-quarters of its exports to the US and ran a trade surplus of about $60 billion in 2015, accounting for more than 5% of economic output.

Perhaps the last thing a country with anemic growth needs is higher interest rates, but the central bank may not be able to avoid tightening. Inflation is expected to run well above the 4% top end of the institution’s target throughout 2017, according to forecasts from Banco Bilbao Vizcaya Argentaria SA, Grupo Financiero Banorte SAB and JPMorgan Chase & Co., as the government moves ahead with plans to raise the price of gasoline by as much as 20% in January.

As inflation expectations keep climbing, swap traders increasingly see Banxico tightening as soon as February, before the Federal Reserve. The Mexican central bank may need to act swiftly to anchor price expectations and safeguard its own credibility, Governor Agustin Carstens has repeatedly stressed.

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