Country risk expert insight: Uncertainty permeates views on Mexico after Trump victory

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By:
Claudia De Meulemeester
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Mexico has climbed two positions in Euromoney’s latest quarter results, ranking 37th out of 186 monitored countries, but the new US presidency has analysts worried.

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ECR scores show an improvement in the labour market and a stable economic performance, but Mexico’s outlook could alter once power relations switch in the White House. We asked three Euromoney experts what could change for the Mexican economy in the upcoming year.

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Neil Pyper, senior lecturer, Coventry University

“Mexico faces uncertainty and potential severe economic pressure. This is likely to mean that the peso remains volatile and investment decisions are delayed. The peso has been relatively weak for some time and up to now this has not had a significant impact on Mexico’s exports.
“However, in a benign scenario, competitive exports could provide a boost to trade if Trump’s approach to Mexico is not as tough as campaign rhetoric might suggest.
“Nonetheless, there are a number of significant risks. The key is a more protectionist approach towards trade. Protectionism would be likely to target Mexico and would hit manufacturing hard.
“In addition, any capital controls imposed on remittances Mexicans in the US send home would have a sharp impact on consumer spending. Also, increased deportations of undocumented Mexicans potentially could put severe pressure on the country’s labour market.
“In a worst-case scenario, Trump administration policies could undermine growth significantly over the next four years. There is also potential for increased political risk as a result of US intelligence on drug cartels, which would put the Mexican government under pressure.
“Therefore, Mexico faces a turbulent period, with most key issues outside of its control.”

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Jacob Jordaan, assistant professor, Utrecht University School of Economics

“Trump’s victory is creating real concerns in Mexico and among international investors and multinational companies that have developed substantial business interests in the Mexican economy over the last decades.

“Ongoing corruption, drug trafficking, illegal immigration into the US and the presumed strong detrimental effects of the North American Free Trade Agreement (Nafta) on blue-collar workers in America’s stagnating industries and regions are key issues that will affect Trump’s attitude towards Mexico.
“In the short run, these concerns will most probably translate into higher risk scores for the Mexican economy, given the strong dependence of the Mexican economy on the US.
“Although the Mexican economy has shown time and again that it contains the capacity to recover successfully from domestic and international economic shocks, it is also true that it remains sensitive to short-run changes in international markets and economic expectations.
“It seems, however, less likely that Mexico’s risk scores will be negatively affected in the long run. Even though the progress may appear slow, the Mexican government is steadily making headway in addressing the structural problems of its society.
“The future relationship between the Mexican and American economy is still unknown, but it is expected to reflect the large business interests of US investors and companies in Mexico, thereby safeguarding the economic ties between these two nations.”


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Johan Krijgsman, independent economic consultant, Krijgsman & Associates

“One of president-elect Trump’s advisers put it this way: the media does not take Donald Trump seriously, but does take him literally. I think this is a very important factor to bear in mind when considering the impact of a Trump presidency on any area including Mexican relations.

“This may not be incompatible with more wall building but it is with destroying the Mexican economy. The pre-election meeting between president Enrique Peña Nieto and candidate Trump looks much wiser in retrospect than it did at the time.
“Illegal immigration has been discussed in the US for decades and now something seems to be changing. US anti-crime actions are likely to get harsher and Nafta will be studied in the light of American net benefits. This could adversely affect Mexico in the short term and a weaker peso will likely be part of the adjustment process.
“However, to believe that this will be catastrophic overlooks the process of negotiation and the mutuality of benefits from trade. We still need to see the difference between election rhetoric and action after account is taken of the consequences for US companies.
“The pressure to address internal dysfunctional habits in Mexico has increased considerably, so has the need to improve the functioning of institutions and incorporating the informal economy into the real one. My view is that this now has a better chance of happening than going along pretending things are just fine.
“Developments suggest a more difficult environment, mitigated somewhat by presumed faster US economic growth, but not necessarily a worsening one from a long term prospective.
“Candidate Trump promised change and while we may believe it will carry harsh adjustments in the short term, they may not be as harsh as now assumed nor as unbeneficial to the longer-term prospects of the Mexican economy.”