Following a challenging but successful 2017, 2018 has the potential to be another prosperous year for Mexico. 2017 came to a close with vast uncertainty, namely NAFTA (North American Free Trade Agreement) that has been an ongoing point of discussion. This could be the cause of a turbulent start to 2018, but over the course of the year continued steady growth is anticipated.
The OECD reports that despite uncertainty, growth should continue above 2%. A tightening monetary policy could bring about a fall in private consumption because of the current high inflation, but at the same time, the contributions of exports and investment towards growth look set to increase, so as to offset any fall in economic growth which could result from private consumption. Thankfully, the September earthquakes had no impact on Mexico’s productive capacity, but the construction sector will reignite in order to repair the damages caused which will provide further support to economic growth. Following a fall in business confidence in 2016, it has since been on the rise and looks set to continue to rise according to the OECD.
A much-needed fall in inflation is also expected. The end of 2017 came with an inflation rate of 6.7%, not only the highest rate of the year but also the highest experienced in Mexico since 2001. Despite this, many believe that we have passed the worst of this inflation, and as of the first quarter of 2018, the rate will decrease. There are hopes that come the end of 2018, the inflation rate will be far closer to a respectable 3%.
An increase in international reserves is also expected, which is promising in terms of stabilising the peso, which fell to an annual low against the dollar in December, at just over 19.5 pesos per dollar. Nevertheless, the head of Citigroup Inc. in Latin America, Ernesto Revilla, expects the peso to strengthen in 2018 and reach 17 pesos per dollar.
Still to come in the foreseeable future this year is the outcome of the NAFTA negotiations. Donald Trump stated last year that he wants NAFTA terminated, but talks are ongoing and the 6th round of negotiations are due to begin in Montreal this month. Regardless of the outcome, this is to an extent greatly responsible for the ongoing uncertainty in Mexico. With each round of negotiations, we move closer to an outcome, and with that, an increase in certainty and confidence. Similarly, the general elections are scheduled to be held in Mexico in July. Enrique Peña Nieto started his term with an approval rating of 50%, and as his term now comes to a close, this rating stands at just 12%. Once the election is concluded, again certainty will improve and confidence and growth will follow.
Granted, the start of 2018 could be characterised by a level of uncertainty, nevertheless, as the year goes on these matters will be resolved, namely the NAFTA negotiations and the general elections in July. Confidence, investment and productivity growth are all expected to result from the conclusion of these matters, so without question, it won’t be long until the exciting projections for 2018 come to fruition. The British Chamber of Commerce is extremely optimistic for 2018 and look forward to hearing from those who are interested in Mexico as their next business destination.