In 2016, domestic demand was the main driving force for the growth in the Mexican economy thanks to easier access to credit and increased remittances from workers abroad, whilst exports did not benefit from the depreciation of the peso against the dollar because of the slowdown in activity in the United States (the leading customer). In 2017, growth is expected to remain fairly weak because of uncertainties around possible protectionist measures concerning its trade with the United States. The possible imposition of a 35% tax on Mexican exports to the US market, as talked about by President-Elect Donald Trump, would be a serious threat to the competitiveness of the Mexican manufacturing industry, as almost 80% of its exports go there. In the meantime, private investment is likely to fall as domestic and foreign investors wait and see. Public Investment will also remain restrained thanks to the budget cuts resulting from the low level of government revenues because of reduced oil and gas revenues, despite the gradual rise in prices. Household consumption should feel the benefits of the expected increase in remittances from Mexican workers living, mostly, in the United States, but will remain limited by the gradual raising of interest rates intended to keep inflation down. This is likely to increase under the impact of the depreciation of the peso, but will remain within the target range (3-4%) set by the Central Bank.

In 2017, Mexico is expected to follow a prudent budget policy because of the reduced level of revenues coming from the energy sector, despite the gradual upturn in oil prices. The government is hoping to make up for the decline in public investment spending by means of increased public-private partnerships, as evidenced by the opening of the capital of PEMEX, the national oil and gas company which will bear the brunt of the investment cuts. The government is also examining the application of a fiscal responsibility law on the local States. This sets limits for the issuing of debt (only public investment and debt refinancing will now be possible). This prudent policy should limit the use of debt. In terms of monetary policy, the uncertainties relating to the future policies that will be applied by President Trump are likely to feed the volatility of the Mexican peso in 2017. The central bank is expected to continue intervening in the currency markets to prevent any excessive fall in the currency against the dollar and ensure that inflation remains within its target range (3-4%). The risks in terms of exchange rates should remain limited thanks to the considerable buffer provided by the country’s currency reserves, estimated at 17% of GDP. Finally, Mexico can use the flexible credit line granted for a two year period by the IMF in May 2016 (8% of GDP), in the event of a major external shock. The current account deficit is expected to hold relatively stable compared with 2016. Exports, mainly consisting of manufactured goods, as well as oil and gas, are expected to continue benefiting from favored access to the North American market during the year. The deficit in services should remain widely steady, despite a slight boost to tourist revenues, whilst the income deficit (mostly because of the withdrawal of profits by multinationals) will remain high. The balance of transfers should improve thanks to the growth in remittances from workers in the United States.

In 2017, the Mexican government is likely to concentrate on its negotiations with the United States which is threatening to renegotiate the North American Free Trade Agreement (NAFTA) and to increase the rate of expulsions of Mexican citizens living illegally in the United States. Although the NAFTA contains effective mechanisms for settling disputes and defines the measures of retortion, Mexico has very little choice but to accept decisions made in the United States given the level of the country’s dependence on the United States. It is far and away the biggest partner for Mexico in terms of trade (80% of its exports go there) and investments, as well as being the leading source of remittances from Mexican workers abroad (around 12 million Mexicans live in the United States legally). Mexico also depends on the United States for military aid and information in the struggle against the drug cartels. In terms of domestic politics, the government is expected to continue its program of structural reforms adopted at the end of 2012. Following an initial tender call which failed to arouse much enthusiasm among investors, the reform of the energy market has proven more promising, with highly successful second and third phases. Further calls covering the deep water oil and gas exploration blocks are likely to take place during the year. Organized crime, corruption and violence continue to impact on the business climate.