The application of tariffs on Mexican exports would lead the country into a recession, according to the economic analysis area of S&P Market Intelligence, the rating agency’s research area.
They anticipate that the tariff measure will also impact private fixed investment and business sentiment, an effect that will end up stagnating economic activity next year as well.
In an analysis that has no rating impact, experts from the firm predicted that if the 25% tariff is confirmed, they expect Mexico to also respond with 10% tariffs on a limited range of products from the United States, mainly metals and selected foods.
In the analysis titled “How could US tariffs affect Mexico’s economic outlook,” they stated that one of the segments of the Mexican economy that will be most affected will be the export sector and its capacity to generate jobs.
“The main factor that will contribute to this slowdown will be real exports of goods and services, which will surely decrease this year.”
However, they qualified that the negative impact of the fall in exports can be partially mitigated by a contraction of real imports of goods and services, attributed to the reduction of capital expenditure in the country.
Impact on remittances
According to the analysis, the policies applied by the new administration to contain migration will affect remittance shipments.
In fact, they consider that there will be a slowdown in remittance shipments to Mexico, which will also affect real private consumption, which for years has been a driver of growth.
Thus, the economy will be impacted by lower external demand, increasing fiscal pressures derived from lower income growth due to the economic slowdown, and the increasingly narrow interest rate differential between Mexico and the United States.
This scenario will boost the US dollar to 22.28 pesos, which contrasts with the base estimate they had at 21.30 pesos per unit.
In an analysis that has no rating impact, the agency projects that the measure will increase the unemployment rate
At S&P, Mexico’s rating is “BBB/positive outlook” which is two levels above investment grade.
Source: eleconomista
