Mexico’s trade deficit likely to have increased in June on slowdown in exports

Mexico’s trade deficit is expected to have broadened in June due to subdued exports. The recent rate of drop in merchandise exports and imports is not quite different from the trend seen in the fourth quarter of 2015 or the first quarter of 2016. However, there appears to be a change in the slowdown of exports, noted Societe Generale in a research report. For instance, the latest fall in the trade balance is not totally because of lower oil exports, unlike in 2015.

Actually, the year-to-date trade figures imply that just 30 percent of the fall in the trade balance was because of the lower-oil related balance and the 70 percent of the decline was mainly because of subdued manufacturing exports as compared with imports.

The small rebound in exports in May was mainly due to a strong base effect. As the strong base effect has diminished, exports are likely to have dropped 4.2 percent year-on-year, whereas imports are expected to have dropped 2.2 percent year-on-year, resulting in a larger trade deficit of USD 1,484 million, stated Societe Generale.

“We expect the year-to-date trade balance to have deteriorated to –$8.1bn vs –$4.1bn during the same period last year,” added Societe Generale.

Declining manufacturing exports indicate towards subdued demand from the US that would continue to determine Mexico’s trade and production growth. If the economic growth of the US expands, it might assist in improving Mexico’s production and exports, even if the lower oil exports would keep trade balances low, according to Societe Generale.

Mexico’s external account and public finances have both been impacted negatively by declining oil prices. Therefore, on a structural basis, Mexico’s current account balance has dropped by between 0.5 percent and 0.8 percent of the GDP.