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Will Mexico Look Past the US to Improve Economic Activity in 2017?

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Mexican economy in 2017

Mexico’s peso (HEWW) was sliding amid the Trump administration’s talks of building a border wall and renegotiating key trade deals like NAFTA (North American Free Trade Agreement) in 2016. However, in 2017, the Mexican peso (DBMX) recovered after Trump gave more assurance that the US would continue with NAFTA, albeit with some possible changes.

Still, Trump’s anti-trade rhetoric has caused Mexican officials to consider working toward reducing the country’s reliance on the US (SPY) and opening new markets (EWZ) (ARGT) (FXI) for its trade.

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Recently, Mexico’s agriculture ministry took 17 Mexican (EWW) companies to talk with Brazil (EWZ) about buying more soy, grain, and corn in South America (ILF). Mexico is one of the top buyers of corn from the US (QQQ), and despite the uncertainties surrounding trade with the US, Mexico’s GDP advanced in first three months of 2017.

Expansion in the Mexican economy in 2017

The Mexican economy expanded in 1Q17 by 0.6%, as compared to 0.7% in 4Q16, beating market expectations. Industrial production remained flat, while service and agriculture outputs reported the following advances:

  • The services sector grew by 1%, as compared to 0.8% in 4Q16.
  • Agriculture recovered, showing 0.7% growth, as compared to -0.3% in 4Q16.

The recent trade data showed exports climbing by 11.2% on a YoY (year-over-year) basis in 1Q17. Manufacturing exports (UMX) grew by 9.2%, and oil exports surged by 58.1% in 1Q17. The increased exports were mainly due to the devaluation of the Mexican peso and the high double-digit growth in exports to countries excluding the US.

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Manufacturing PMI on the rise

The Markit Mexico Manufacturing PMI (purchasing managers’ index) reached a five-month high at 51.5 in March 2017, as compared to 50.6 in February 2017. This points to the strongest expansion in manufacturing activity (IYJ) since October of 2016, with increased new orders, outputs, and stocks of inputs.

The Mexican administration appears to be trying to improve its trade relations with the other partners, thereby improving its number of new orders. Economic activity in Mexico in 2017 still looks resilient to the unstable oil prices, reduced poor trade growth, and monetary policy tightening in the US since 2016.

However, the International Monetary Fund has downgraded its forecast for Mexico to 1.7% in 2017 and 2% in 2018, mainly due to the anti-trade rhetoric of the Trump administration, which has dragged down the Mexican peso since the November 2016 elections in the US and led to uncertainty surrounding NAFTA.

Continue to the next part for a look at Chile.

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