Mexico's economy likely to stagnate in 2017 - BNP Paribas

Donald Trump’s election as US President is a significant factor of uncertainty for the Mexican economy. Mexico’s foreign trade (renegotiation of NAFTA) and immigration are liekly to be impacted. Owing to the high budget deficit, fiscal policy has little leeway for economic stimuli.

 The Mexican central bank (Banxico), on the other hand, will have to continue its restrictive monetary policy to prevent a notable increase in consumer prices due to a weak peso. This will weigh on private consumption – an important pillar of economic growth. Mexico's GDP growth to expected to slow further in 2017.

Analysts at BNP Paribas expects real GDP growth in Mexico to slow from about 2% this year to close to 0% in 2017, as BNPP suspects balance-of-payment conditions will deteriorate more than most observers seem willing to admit.

Uncertainty is likely to remain high in connection with the beginning of Donald Trump’s presidency as well as US monetary policy. Significant rate hikes from Banxico can be expected for 2017 which would be required to keep inflation in check.

"We assume that the resolute reaction of the Mexican central bank will be sufficient to prevent another plunge of the peso. But it is unlikely to avert further peso weakness, as the environment is too unfavourable. We expect the peso to depreciate to 22 against the USD over the course of next year.” said Commerzbank in a report.

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