Mexico’s medium-term trade balance outlook deteriorates

Mexico’s trade balance continues to be ordinary, while the medium-term outlook is worsening. The country’s year-to-date trade balance worsened from a deficit of USD 10.8 billion to a deficit of USD 12.5 billion as exports declined 3.8 percent year-on-year. Imports were down 3.1 percent. However, the rate of deterioration of trade improved in 2016 as the gap between import and export growth narrowed from the gap last year when exports declined 3.2 percent, whereas imports were almost flat.

Given that the investment demand is decelerating, import growth is expected to stay depressed beyond the volatility in the monthly data, noted Societe Generale in a research note. In the meantime, there might be a probability of a boost to exports in the near-term if the U.S. demand growth improves. But for the medium-term, the country’s trade outlook has worsened deeply due to the U.S. election results.

There is little information regarding the possible alterations to the U.S. trade policies. But they would most likely be negative for Mexico’s trade/GDP ratio, investment and growth outlook and the fiscal and external balances, added Societe Generale.