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The Future of Mexico’s Economy

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Robert Nelson Co-Founder of Expats In Mexico
Robert Nelson

The peso-to-dollar exchange rate is hovering around 19 pesos as I write this column, a bonanza for expats who are benefiting from the peso’s plunge. But, according to the Wall Street Journal, Bloomberg News and many other financial news media, the party may end on November 9th.

The peso’s roller coaster ride has mapped the ups and downs of the U.S. presidential race, heading down when Donald Trump advances and strengthening when Hillary Clinton gains the upper hand.

One of the most contentious presidential races in modern history is having a profound effect on Mexico, as the country’s government is eyeing the damage a Trump presidency could bring to the nation’s economy.

Mexico is the third largest trading partner of the United States and represents the second largest export market for U.S. products and services. Since the implementation of the North American Free Trade Agreement (NAFTA) in 1994, Mexico’s share of U.S. imports has increased from 7 percent to 12 percent and its share of Canadian imports has doubled to 5 percent.

With the 15th largest gross domestic product (GDP) in the world, Mexico sends the U.S. nearly three-fourths of its exports, so any political change north of the border would have major ramifications for the economy in Mexico.

According to the Wall Street Journal, the Mexican peso has ended its longest losing streak since February, chiefly because stock traders believe Mexico’s central bank will shore up any losses resulting from worry over who will win the U.S. presidential election.

The country has a lot to lose economically if Donald Trump becomes the next president of the United States. First, he has proposed seizing remittances, which are a very important part of Mexico’s economy. Second, he has advocated leaving the North America Free Trade Agreement, which has increased Mexico’s exports sevenfold. The dissolution of NAFTA would have an inestimable effect on Mexico’s economy.

And, of course, his deportation and wall-building plans also will reverberate throughout Mexico’s economy.

There is nothing better than having an advantageous exchange rate, particularly if you are an expat living on a fixed income. But it doesn’t mean that much if the local economy is crumbling all around you.

We will know in less than four weeks.