Mexico has become the worst-hit country in Latin America from COVID-19, though some sectors like the automotive industry will help boost the economy. The current pace of vaccination makes it unlikely that the country will achieve herd immunity in 2021. As of March 23, 2021, Mexico has access to 4.6 vaccines per 100 people, compared to 46.9 vaccines per 100 people in Chile.
Mexico’s outlook remains challenging to forecast amid the COVID-19 fallout and AMLO’s new energy policy. As a result, the peso will appreciate against the US dollar, but will not recover the ground it lost in 2020. The peso has appreciated by around 16%, after reaching the threshold of 25 MXN/USD in early May 2020 during the COVID-19 shock. Since then, the peso has remained stable through AMLO’s policies and the Trump administration, but the risk is still there.
Factors that could help sustain or weaken the peso
|US lax monetary policy||Pemex’s dire financial situation|
|US economic recovery||Banxico’s legislation that could undermine its independence|
|Steady implementation of the USMCA||US tight monetary policy|
|Improvement of business sentiment||Mexico’s credit rating downgrade|
|Acceleration of the infrastructure plan||COVID-19’s effects|
|AMLO’s commitment to fiscal stability||Expansive fiscal policy without a feasible government spending plan|
Automotive Industry Macroeconomic Trends
Mexico will face a K-shaped recovery at the industry level overall. However, auto, agriculture, and other manufactured goods will continue to lift exports in 2021 on the back of US demand. The automotive industry will be strengthened by the USMCA, growing automotive exports by up to 8.98%. Exports took a nosedive last year because of weak US demand and the shutdown of most of the auto plants in Mexico, but the strong rebound of the US economy in 2021 will help acceleration.
Auto companies will need to reassess their strategic plans in Mexico, as the USMCA will bring substantial changes after 2023. B2B firms are expected to be impacted, particularly by the inclusion of digital trade, new provisions on intellectual property, trade uncertainty from USMCA sunset provisions, and more.
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