Background on Coface and its Relevance
Coface, a leading international credit insurance company, has recently adjusted its growth projection for Mexico’s economy in 2025 from zero to a modest 0.5%. This revision acknowledges “an improvement in the outlook, though it’s not a remarkably positive performance nor does it signify a dramatic improvement,” according to Marcos Carías, the economist for North America at Coface.
Current Economic Situation in Mexico
The overall economic environment remains uncertain, primarily due to the unclear outcomes of the review and renegotiation of the trade agreement with the United States and Canada, known as the T-MEC. Despite this uncertainty, Mexico has not technically entered a recession, as there have been no two consecutive quarters of contraction. Instead, the country has experienced weak growth in recent quarters, largely attributed to US companies anticipating tariffs imposed by the White House.
Monetary Policy and T-MEC Negotiations
Marcos Carías projects that, given the current situation, the Bank of Mexico will implement two additional interest rate cuts, bringing the rate to 7.50%, with a brief pause in between.
US Stance on T-MEC and Trade Indications
Strategists at global investment bank UBS have noted signs that the United States might pursue more ambitious and extensive talks beyond merely revising the T-MEC. They believe a complete rupture is unlikely due to high integration and mutual benefits, stating that “we still expect the T-MEC to persist, though it may come with stricter conditions for Mexico and Canada.”
Tariffs and T-MEC Negotiations
According to Coface’s strategist, President Donald Trump’s stance suggests tariffs have a very political logic. Consequently, products adhering to T-MEC rules are being exempted from tariffs, allowing the US to be more assertive in negotiations with Mexico while still respecting the long-term trade agreement.
Mexico’s Trade Importance and Technological Exports
Coface’s expert highlights Mexico’s growing significance in computer, mobile phone, and electronic appliance exports. With preferential treatment compared to other trading partners like China, Mexico might see increased importance as a US supplier due to tariff differences.
Key Questions and Answers
- What percentage of trade between Mexico and the US currently benefits from T-MEC protections? The Mexican government estimates 87%, while US officials place it around 75%. Despite the difference, UBS economists agree that Mexico maintains a relatively favorable trade position, largely due to the T-MEC.
Potential Impact of Prolonged or Politicized T-MEC Renegotiation
UBS’s analysis, titled “USMCA likely to remain pillar of regional integration despite upcoming review,” warns that prolonged or politicized T-MEC renegotiations could complicate investment decisions and cloud regional integration prospects.
