Itaú BBA - Trump’s temporary trade war with Mexico

Scenario Review - Mexico

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Trump’s temporary trade war with Mexico

junio 13, 2019

New tariff threats cannot be discarded in the future


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

• President Trump threatened Mexico with tariffs on its exports to the U.S. as a way to pressure the country to curb irregular migration. A deal was reached, avoiding the imposition of tariffs. Still, the episode suggests that uncertainty over trade relations with the U.S. will not end even if the USMCA is approved, which is negative for investment in Mexico. At the same time, rating agencies are taking a more negative stance both on Mexico’s sovereign rating and on PEMEX. 

• We revised our GDP growth forecasts for 2019 and 2020 to 1.0% (from 1.4%) and 1.3% (from 1.7%), mainly due to weaker economic activity expected in the US. Uncertainty surrounding the economy will continue to weight on investment, while employment is already weakening. On the other hand, recent real wage increases are a buffer (though they may make disinflation harder).

• The central bank is closing the doors on monetary easing for the short term. We expect Banxico to start a normalization cycle only by the last quarter of this year. We believe that with inflation falling within the central bank’s target range, below-potential growth, and a looser monetary-policy stance by the Fed, the central bank will have room to start a gradual normalization cycle, as long as uncertainty abates and risks for inflation ease.
 

João Pedro Bumachar
Julio Ruiz

 

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



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