Itaú BBA - Navigating more turbulent waters

Scenario Review - Mexico

< Volver

Navigating more turbulent waters

junio 7, 2018

NAFTA, elections, and external risks intensified

For the full version with all charts and tables, please open the attached pdf file 

The last set of presidential election polls shows that AMLO’s lead is widening further, increasing the odds that his party obtains a majority in Congress.

NAFTA renegotiation took a turn for the worse in late May. Not only was an agreement not reached, but trade relations between the member countries were strained when the U.S. decided to impose tariffs on steel and aluminum imports from both Mexico and Canada (and these countries retaliated with equivalent measures). 

Also considering USD global strength, we now expect the MXN to end this year at 19.5 to the USD (from 18.5 in our previous scenario). For 2019, as uncertainties gradually dissipate, we expect an appreciation to levels more consistent with fundamentals (18.5 by the end of next year).  We increased our inflation forecast for this year to 4.0% (from 3.7%) and to 3.5% next year (from 3.3%). 

In spite of all the risks surrounding the Mexican economy, activity is doing well, as exports increase sharply (lifted by robust U.S. demand) and consumption benefits from a still solid labor market and lower inflation. Even investment is recovering, although this is likely transitory. We expect growth at 2.3% this year (higher than the 2.0% of last year). For 2019, we expect 2.0%. 

Risks that the central bank monitors (trade relations with the U.S., monetary policy in that country and elections) have intensified, and we expect the central bank to increase its policy rate by 25 bps at its June meeting (taking it to 7.75%). Additional tightening can’t be ruled out, and we do not expect rate cuts this year. 

For the full version with all charts and tables, please open the attached pdf file 

< Volver