Mexico Growth Shakes Off NAFTA Concerns

Mexico’s Central Bank upgraded its growth forecast for the country in 2017, the first big piece of good news since US President Donald Trump was elected in November 2016. The move suggests a tale of two growth stories in Latin America’s second largest economy.

The Mexican economy has been on a rollercoaster ride since Trump won the race for the presidency earlier this year, in large part because the renegotiation of the North America Trade Agreement was a cornerstone of his campaign.  It was general consensus among investors and analysts that a Trump presidency was bad news for the country’s southern neighbor, bondsloans.com reported.

The Mexican peso, which had become a proxy for Trump’s chances on winning the presidency during the electoral campaign, was one of the worst performing currencies in the world in the first quarter of 2017, reporting record losses and trading as weak as MXN21.96 per US dollar in January.

Fast forward to a few months, and none of the apocalyptic predictions for Mexico appear to be coming true; on the contrary, Mexico’s Central Bank upgraded the country’s growth prospects from 1.5% to 2.5% for 2017.

According to Martin Castellano, deputy chief economist, Latin America Department at the Institute of International Finance, the resilience of Mexico’s economy despite the “Trump factor” is mostly due to a combination of factors, including proactive policies put in place by the government to strengthen the country’s macro position ahead of the upcoming challenges, and a robust performance of nonoil exports and private consumption.

The nation’s exports, excluding oil, which has been hit by lower production at state-run oil company Pemex, grew 9.2% in the first quarter from a year earlier–the strongest pace in more than two years. The Markit Mexico Manufacturing Purchasing Managers’ Index rose to 51.2 in May, from 50.7 in April when adjusted for seasonal swings.

The agricultural industry also expanded to 1.1% in the first quarter of 2017 compared to 0.6% in the previous quarter, while the industrial sector grew 1.1% in 1Q2017 compared with 0.7% in the last months of 2016.

The currency seems to have recovered most of its post-Trump losses, trading at MXN18.41 in early June, its strongest levels in more than a year, after polls predicted that Alfredo Maza, member of the ruling PRI party, was going to become the next governor of the state of Mexico. This election was viewed by many analysts and investors as a crucial test for PRI prior to the 2018 presidential election.