Citi’s chief economist highlights current positive perception of Mexico as unprecedented

Citi’s chief economist highlights current positive perception of Mexico as unprecedented

According to Citi’s chief economist, Nathan Sheets, Mexico is currently experiencing a positive perception internationally. This can be attributed to the country’s economic performance and the benefits it is receiving from the global relocation of supply chains. Sheets noted that this level of positive perception towards Mexico has not been seen before.

He highlighted that the Mexican economy has shown exceptional resilience on a global scale. In comparison to the United States, where the upcoming elections between Joe Biden and Donald Trump are expected to cause volatility, Mexico’s internal elections are not anticipated to have as much impact. The ongoing proposals in the US election, such as imposing tariffs on trade with China, could potentially disrupt supply chains over time.

Ernesto Revilla, Citi Latam’s chief economist, mentioned that the check on the Asian economy and its slowdown has benefited Mexico as a competitor in the manufacturing industry. Although elections in emerging countries are known to create market volatility, Mexico is projected to experience greater uncertainty from the US elections. However, it is believed that regardless of the outcome, there will be continuity in terms of fiscal discipline.

Looking ahead, Citi expects the peso to become more volatile in the second half of the year, with the exchange rate closing close to 18 units per dollar. The Bank of Mexico’s reference rate is anticipated to decrease from the current level of 11.25% in March to around 8.5% by the end of the year. Despite this, inflation is expected to continue falling until it reaches its objective in 2025.

Revilla suggested that a credible and feasible business plan presented by the next administration could quickly change the outlook for Petróleos Mexicanos (Pemex). This could also impact the risk rating agencies’ perspectives on Mexico’s largest state-owned oil company, which currently poses a significant risk to public finances and the macroeconomy. Despite these challenges, Revilla mentioned that Pemex’s situation is manageable.

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