Economics: Extent of Trump's Trade Agenda
One of the central themes of United States President-elect Donald Trump’s election campaign was his call to review or cancel the trade accords the US has entered into with other countries as he claimed the US economy and employment have suffered as a result of the economic opening. Uncertainty regarding Donald Trump’s real intentions or the viability of his campaign promises has been a source of considerable market volatility, and his real intentions will only begin to take shape as Washington begins to signal the specifics of its negotiating agenda. Meanwhile, they remain a major point of concern for Mexico given the extent of its trade and broader economic ties with its northern neighbor.
This week’s Outlook section discusses US-Mexico trade relations, which sectors are likely to feel the brunt of any renegotiation of Nafta, the viability of Trump’s suggested changes in trade policy, and their potential repercussions on the Mexican economy.
The uncertainty posed by the incoming Trump administration was magnified by last Thursday's announcement that Banco de México Governor Agustín Carstens had tendered his resignation effective July 1, 2017, and that as of October he will begin a new job as general manager of the Switzerland-based Bank for International Settlements. The day of the announcement the peso lost 20 centavos against the dollar, to close trading at 21.05/USD.
Economic news last week was unquestionably downbeat even though the indicators and readings of sentiment published last week predated concerns over who will be the next head of Mexico’s central bank (but many were collected since the election of Trump). The leading indicator of economic activity for October fell 0.02 points under the weight of losses registered by US stocks (Standard & Poor’s 500), and a rise in Mexico’s TIIE (Equilibrium Interbank Interest Rate), a key funding rate used as the benchmark for some corporate credit.
It is worth noting that in recent months Banco de México has raised its same-day Target Rate in moves that also sent the TIIE higher. On that note, in the central bank’s most recent monthly survey of private sector economists, the market consensus now says that the monetary authority will raise the Target Rate, which stands at 5.25%, by at least another quarter of an interest point before the end of December. Analysts only slightly adjusted their estimate of real-term economic growth for 2016 (to 2.08%, from 2.07% the previous month), but they slashed their forecast for 2017 to 1.72%, down from 2.36% at the end of October and 2.52% in late September.
Other changes of note in the survey occurred on the level of inflation and the foreign exchange rate. The consensus calls for the exchange rate to average 20.78 pesos to the dollar in 2016 and 20.89 in 2017, well above the median forecasts of a month earlier at 18.69 pesos to the dollar and 18.65, respectively. Analysts raised their year-end inflation projection for 2016 to 3.41% (up from 3.27% in later October), and that of 2017 to 4.01% from 3.57% in the previous survey.
Analysts concurred that the business climate would not improve in the next six months and for that reason most say that this is not a good time to be investing.
In a similar vein, the National Statistics Institute’s monthly survey of business sentiment revealed a further rise in pessimism in November in economic sectors such as construction, commerce and manufacturing, with that mood especially obvious in business owners' adverse assessments of the Mexican economy.
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