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Euromonitor International’s Mexico Economy, Finance and Trade Country Briefing, focuses on one of Latin America’s economies which is heavily reliant on the success of the US economy to drive exports progression and remittance inflows. Donald Trump’s surprising victory in the US elections pushed the Mexican peso to historic lows, summoning dangers instore for Mexico, given the newly elected President’s proposed protectionist measures. During the Presidential campaign, Trump promised to renegotiate or end the North American Free Trade Agreement (NAFTA), stop the Trans-Pacific Partnership trade deal, curb the influx of migrants, block the outflow of remittances and build a wall along the US-Mexico border to cut off trade and immigration between the two nations. Although, the viability of implementing such plans seems uncertain, the start of Trump’s administration haunts Mexico given the nation’s strong link to the US economy. Trump’s victory is expected to deteriorate Mexico’s business as well as consumer sentiments, external balances and trade ties with the USA. This is further expected to reduce Mexico’s real GDP growth forecast from 2.7% (according to the Pre-Trump Scenario in Euromonitor’s Macro Model) to 1.6% in 2017.
Given Mexico’s close economic ties with the USA, Mexico will be the most impacted country from a Trump administration:
Mexico’s economic ties with the USA have amplified considerably since NAFTA took effect in 1994, eradicating most tariffs on goods traded between the USA, Canada and Mexico. Hence, the USA became the Latin American country’s largest trade as well as investment partner. By 2015, 81.0% of Mexican goods were exported to the USA. Elimination of NAFTA will have far reaching consequences for the Mexican economy, via high export costs, reduction of US investments and potential capital flight induced by uncertainty.
Furthermore, in 2015, Mexico was the fourth largest recipient of remittance inflows in the world, accounting for 2.2% of its GDP. These inflows are predominantly from the USA and play a major role in increasing household consumption and reducing poverty. Trump’s anti-immigration policies and his plans of restricting migrant’s remittances will certainly affect Mexican household income and expenditure and decrease Mexican firms profit levels. The sharp fall in remittance inflows will also weigh on poverty reduction via reduced income levels.
An additional major impact would also be felt by Mexico’s external balances as a decline in exports and remittances inflows will widen Mexico’s modest current account deficit, which stood at 2.9% of GDP in 2015. All of this will eventually slow down the country’s economic growth.