Itaú BBA - NAFTA agreement reached

Scenario Review - Mexico

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NAFTA agreement reached

October 8, 2018

More details on AMLO’s policies.

The president of the Lower House, Mario Delgado, provided some details on the preliminary 2019 budget to the media. Total expenditure is 0.72% of GDP, higher than what the Ministry of Finance estimated for 2019 last March. Meanwhile, AMLO nominated Jonathan Heath as replacement for Central Bank Deputy Governor Manuel Ramos Francia, indicating policy continuity.

On the last day of September, Canada reached an agreement with the U.S., so there is now a new trilateral U.S.-Mexico-Canada trade agreement (USMCA), which replaces NAFTA and eliminates a major source of uncertainty over Mexico’s economy and asset prices. The key event to monitor in Mexico now is the discussion of the budget.

Given the decreased uncertainty over trade relations with the U.S., we expect the economy to accelerate next year to 2.2%, from 2.0% this year. 

The central bank left the policy rate unchanged in October, but adopted a more cautious tone. While we do not expect further interest rate increases, monetary policy in the U.S. amid still-high inflation figures is a risk.

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