Mexico hails potential rewards from 'Nafta 2.0' upgrade

Mexico's finance minister and deputy central bank governor have taken a positive stance on a renegotiation of Nafta in interviews with Global Markets, but analysts believe the trade row with the US only masks deeper-seated structural problems

  • By Thierry Ogier
  • 02 Apr 2017
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Mexico could benefit from the renegotiation of the North American free trade agreement (Nafta) that was a key plank of US President Donald Trump’s election manifesto, according to the country’s leading policymakers.


Finance minister José Antonio Meade said the renegotiation presented an opportunity to improve the deal, while a senior central banker highlighted a “more constructive tone” between the two countries.

But leading independent analysts warned Mexico still needed to tackle structural problems that threatened to consign it to an era of low economic growth.

In an interview with Global Markets, Meade said: “Nafta is 22 years old. There is an opportunity to improve it. It is hard to argue that these renegotiations [of Nafta] will end up harming the US or Mexico.

“There has been a good engagement with many of our counterparts in the US. There is a common understanding that both of us are important to each other.”

Alejandro Diaz de Leon, Mexico’s deputy central bank governor, highlighted the “more constructive tone” and the “improved narrative from US authorities regarding bilateral trade relations”, in an interview with Global Markets.

He said Mexico had some good arguments to defend. “The productivity story in manufacturing in North America looks better with than without Mexico” he said. “There are a lot of elements to put on the table. I think Nafta 2.0 could look like a better Nafta. We clearly have not sipped champagne yet, but the elements are there.”

Uncertainties regarding Nafta, and possibly the Fed tightening policy, also add to another long-standing problem in Mexico: weak economic growth. The government expects GDP growth to be between 1.3% and 2.3% this year.

“The main problem for Mexico is that even with Nafta, growth has been low for a long period of time and they have to work on the issues to sustainably increase the growth rate of the economy, regardless of Nafta,” said Alejandro Werner, the IMF’s director of the Western hemisphere, in an interview with Global Markets.


No quick fix

Some argue that Mexico faced structural issues well before the US elections. “The uncertainty that was triggered by Donald Trump’s election has only added to these uncertainties,” said Joydeep Mukherji, managing director of sovereign ratings at S&P Global.

He warned that there would be no quick fix. “The Nafta-related uncertainty may last for three years. Things are only made worse by the uncertainty created by the US,” he said.

Martin Castellano, deputy chief Latin America economist at the Institute of International Finance (IIF), sad that “heightened uncertainty over the stability of the relations with the US is likely to persist over the years”.

“We project growth to slow down this year and next due to tighter monetary conditions and eroded domestic confidence stemming from the impact of policy changes and the upcoming presidential elections,” he said. The IIF has forecast GDP growth for Mexico at 1% and 0.5% for this year and next year.

“We continue to see downside risks,” said Shelly Shetty, head of Latin American sovereigns at Fitch Ratings, which has also cut its growth forecast to below 2% this year and to around 2% in 2018.

Next year’s elections also create some uncertainty among investors. “This could be a very competitive process and this could also bring some uncertainties for domestic economic agents. We will also have to keep an eye on this,” she said. Investors are increasingly concerned about the possible victory of the “populist” candidate Andrés Manuel Lopez Obrador.

  • By Thierry Ogier
  • 02 Apr 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 13 Mar 2017
1 JPMorgan 94,925.33 384 8.39%
2 Citi 87,531.58 331 7.74%
3 Bank of America Merrill Lynch 84,341.49 288 7.46%
4 Barclays 75,288.19 241 6.66%
5 Goldman Sachs 68,504.71 208 6.06%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 14 Mar 2017
1 Bank of America Merrill Lynch 10,650.87 23 11.13%
2 Deutsche Bank 8,169.49 17 8.53%
3 HSBC 6,243.46 23 6.52%
4 Citi 4,355.35 13 4.55%
5 SG Corporate & Investment Banking 4,273.37 17 4.46%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Apr 2017
1 JPMorgan 6,719.07 26 8.43%
2 Deutsche Bank 5,994.13 30 7.52%
3 UBS 5,678.69 26 7.12%
4 Citi 4,920.31 35 6.17%
5 Goldman Sachs 4,802.16 24 6.02%