Wall Street Says Mexico Is Downplaying the Trump Threat

  • Finance Ministry keeps forecast for expansion of up to 3%
  • Analysts in Citigroup survey see 2017 growth of less than 2%

Mexico’s government and the analysts who cover the economy have never been further apart on their growth expectations. It’s essentially a disagreement on how much concern Donald Trump presents.

The Finance Ministry maintained its forecast for expansion in 2017 on Wednesday, saying the economy can grow as much as 3 percent even with Trump as U.S. president. A day earlier, private-sector economists reduced their estimate to 1.8 percent from 2.3 percent, according to a survey by Citigroup Inc. The 2.5 percent midpoint of the Finance Ministry’s forecast is higher than any prediction in the survey.

President Enrique Pena Nieto’s administration will wait to see which policies Trump implements before adjusting its outlook, according to Vanessa Rubio, a deputy finance minister. That rosy approach clashes with the nation’s own independent central bank. Banco de Mexico, whose leader Agustin Carstens in September called Trump a "hurricane," cut its growth estimate Wednesday to 1.5 percent to 2.5 percent.

"Yes, the Finance Ministry should have revised it’s estimate for growth," said Alejandro Cervantes, an economist at Grupo Financiero Banorte SAB, Mexico’s largest publicly traded bank. "The uncertainty will have an effect on consumption and private investment as soon as this quarter."

Luis Madrazo, the Finance Ministry’s chief economist, said later Wednesday that the government didn’t update its 2017 forecast because its policy is to only revise the outlook at certain times of year. While the ministry is analyzing changes to that policy, the current growth estimate remains active until further review, Madrazo said by phone.

Private spending has helped prop up the Mexican economy after it was hit by a slump in exports to the U.S. and a drop in oil prices and production that forced the government to cut outlays. At the same time, consumer confidence plummeted to the lowest level in six years in September as the peso’s drop to a record low following Trump’s advance in pre-election U.S. polls spurred the prospect of faster inflation.

Mexico has earned a reputation in recent years as a relatively stable economy, reaping the benefits of free trade and manufacturing integration with the U.S. to insulate itself from commodity price swings that have whipsawed other economies in Latin America. That dependability was thrown into doubt this month by Trump’s victory in the U.S. election and his pledge to end or overhaul the North American Free Trade Agreement. The potential losses for Mexico led BlackRock Inc. to cut its growth forecast for next year to 1 percent, the smallest gain since the 2009 financial crisis. Banorte forecasts growth of 1.1 percent.

The government’s projection "is definitely optimistic," said Alberto Ramos, the chief Latin America economist at Goldman Sachs Group Inc. "The risks and uncertainty with regards to the overall U.S. post-election policy mix are likely to have an immediate negative impact," Ramos said, including possible delays or cancellations in domestic and foreign investment and more caution from consumers. He forecasts growth of 2 percent next year.

Despite Trump’s campaign rhetoric, Mexico Economy Minister Ildefonso Guajardo has said he’s confident the president-elect will look to "modernize" Nafta and maybe incorporate topics like e-commerce rather than abandon the deal.

Carstens told reporters Wednesday that it’s understandable the Finance Ministry and central bank could have different visions of the near-term economic future, given the lack of clarity on Trump’s plans. During the campaign, Trump said he would deport millions of undocumented Mexican immigrants, build a border wall between the two countries, and make Mexico pay for it.

He’s already eased off some other campaign pledges, such as to repeal and replace Obamacare on his first day in office, and in an interview on the U.S. news show "60 Minutes," he said he’d accept a fence instead of a wall on some parts of the border.

"Right now, the world is rich with uncertainty," Carstens said.

— With assistance by Isabella Cota

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