A More Sober Look At Mexican Trade Prospects

Expectations that fast-rising U.S. exports to Mexico will continue to offset weaker sales in Europe may prove overly optimistic. Economist Michael Moran of Daiwa Securities America Inc. points out that merchandise exports to Mexico actually declined in July and August to an annual level some 19% below their second-quarter pace--suggesting that such exports are about to post their first quarterly decline in three years.

Moran says that the main reason for the sudden drop is a slowdown in Mexican growth after the government nearly doubled short-term interest rates to about 19% earlier this year to rein in inflation. Uncertainty associated with the U.S. election and the North American Free Trade Agreement may also have led many companies to put investment plans on hold. For the next few months, he says, "the outlook for trade with Mexico is not especially favorable."

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