Mexico at risk of recession, according to COFACE

Terminating NAFTA and the result of the 2018 election are two factors which could send the country into an economic recession
Skyline of Mexico City – Photo: Alma Rodríguez Ayala/EL UNIVERSAL
23/01/2018
11:18
Miguel Pallares
Mexico City
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Mexican economy is at risk of falling into a recession should the North American Free Trade Agreement (NAFTA) end and the 2018 General Election have a "populist" outcome that discourages investment in México, according to Bart Pattyn, President & CEO at COFACE Latin America.

“Mexico has challenges ahead, deceleration, doubts, turbulence, and uncertainty which may lower growth rate, and even generate a negative growth which can lead to a recession,” said Pattyn.

During an interview with EL UNIVERSAL, prior to the Country Risk Conference to be held this Tuesday in Paris, France, Pattyn shared with us this possible recession could depend on unfavorable results in both processes – the election and NAFTA – even if these are not correlated.

“Certain scenarios could lead to a deceleration and a negative growth. If NAFTA isn't renewed or if there is a prominent confrontation between Mexico and the United States over international transactions, and if the elections have a populist nature that goes against the interest of corporations, then this could be a time when Mexico effectively faces a somewhat negative panorama.”

In January of 2018, COFACE (Compagnie Française d'Assurance pour le Commerce Extérieur) –  lowered Mexico's risk classification from A4 to B – the lowest mark we've had in 11 years. This adjustment implies Mexico is no longer considered a good place for investments as there is a risk of insolvency.

According to Pattyn, Mexico's economy was downgraded as it became a “vulnerable” economy after the result of the U.S. presidential election and the doubts cast over the NAFTA talks. However, he clarified there is currently no program or element which could create a negative perception.

COFACE is a France-based company, leader on export insurance, that provides a country risk classification based on the following ratings: A1, A2, A3, A4, B, C, and D.

According to Pattyn, the current situation Mexico is going through will prevent the country from benefiting from the global economic expansion, as other countries have registered economic acceleration, low unemployment levels, and optimistic panoramas for the future.

“In 2014-2015, when Latin America was living a deep raw material crisis, Mexico was shielded by NAFTA, by the economic expansion of the U.S. but now it's the other way around; NAFTA is in crisis and Mexico has internal issues while the world is enjoying an expansion phase,” he explained.

There are other factors, according to Pattyn, which will have a direct impact on Mexico's economy, such as public expenditure, private expenditure, exports, and remmitances, which point to an unfavorable scenario.

“There's a tendency on election year to spend money on projects which can increase reelection possibilities, at the same time, companies avoid making big decisions until they know the result of the election so when we talk about public expenditure, we have a negative element for development,”

Regarding private expenditure, COFACE believes inflation and its impact on purchasing power will have a negative impact on commerce.

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