Home Expat Blogs What Will the New Year Bring for Mexico’s Economy?

What Will the New Year Bring for Mexico’s Economy?

Business district of Mexico City
Credit: 1photo | Bigstock
Robert Nelson Co-Founder of Expats In Mexico
Credit: Robert Nelson

Is Mexico in the calm before the storm? What will the new year bring for Mexico’s economy?

The financial news website Marketwatch reported this week that “unemployment in Mexico fell to its lowest level in nine years in October amid strong private-sector job growth that has supported consumption and helped keep the economy expanding.”

Mexico’s unemployment rate fell to just 3.6 percent nationally and 4.4 percent in the country’s 32 largest cities, the lowest unemployment rates since December 2007.

Economic growth pushed forward at a 2.3 percent rate for the first three quarters of 2016, driven by low inflation and increased consumer lending, which has increased consumption of goods and services.

But following the recent presidential election in the U.S., Mexico’s economic outlook for 2017 is far from certain.

Fear of new U.S. economic policy changes that will directly affect the country has already contributed to the fall of the peso against the U.S. dollar. The current exchange rate is 20.5 pesos to the U.S. dollar and could get worse in the months to come.

The Economy Forecast Agency predicts a 22.10 pesos-to-the-dollar exchange rate by December 2017.

The peso’s weakness against the dollar has already begun to spur inflation by pushing up prices of imported goods. Annual inflation, which has been running below 3 percent for the past year and a half, jumped to 3.3 percent last month.

According to the National Interest – a conservative quarterly journal of international affairs – two of president-elect Trump’s major proposals will impact U.S. – Mexico relations: building a border wall and renegotiating the North American Free Trade Agreement (NAFTA).

National Interest opines, “Maintaining a stable, prosperous and democratic Mexico must be a strategic priority for the United States.” It believes that renegotiating NAFTA could be a win-win for both sides, particularly if both countries agree to modernize the treaty by focusing on infrastructure upgrades and better labor and environmental standards.

One important benefit of NAFTA that both Mexico and the U.S. will not want to overlook, National Interest said, is the interconnected private associations, business supply chains and law enforcement exchanges that have grown since NAFTA went into effect in 1994.

Another benefit of keeping NAFTA in place, said National Interest, is NAFTA’s dispute resolution system and liberal rules, which will help make Mexico’s energy reforms – providing private oil companies access to Mexico’s 10 billion barrels of proven reserves – a success.

We won’t know if or when new U.S. policies will be implemented, but Mexico’s economic future will depend greatly on how well it plans for and meets these challenges.

For expats in Mexico, a lot will be riding on how well both countries work together to resolve their differences.