Mexico’s exports likely to have declined in May on slower U.S. growth

The deceleration in Mexico’s merchandise exports and imports in recent times is not much different from that in the first quarter of 2016 and in the fourth quarter of 2015. However, there appears to certain change in the slowdown of exports. For instance, the recent drop in Mexico’s 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 decline in the trade was because of the lower oil-related balance, while the remainder 70 percent of drop was mainly due to subdued exports as compared to imports.

This trend suggests that Mexico is expected to have recorded a trade deficit of USD 2,863 million in May, said Societe Generale in a research note. Export and Import growth are anticipated at -8.5 percent y/y and 2.8 percent year-on-year respectively, added Societe Generale.

Declining manufacturing exports indicate subdued demand from the US, whereas firmer imports are expected to show stronger consumption growth in Mexico. This is likely to have been underpinned by the latest retail sales figures led by lower inflation.

The pace of U.S. growth is expected to determine Mexico’s manufacturing and trade growth in the future. If the U.S. economic growth accelerates, it might assist in aiding Mexico’s manufacturing production and exports even if the lower oil exports maintain low trade balances, according to Societe Generale.

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