Mexico is on a roll. It has notched up a trade surplus in February and the economy grew more than analysts were expecting in January, according to new data out this morning. That on top of the fact that the peso is back within spitting distance of its pre-election level and the stock market hit a record high last week. Trump trouble averted?


First the numbers. Mexico’s non-oil trade balance extended recent improvements by moving to a surplus of $684m. That compares to a $783m deficit recorded February last year and handily beat market expectations for a $400m deficit. It is also the biggest monthly surplus recorded by the country since March 2014, according to Bloomberg data.

Overall, exports rose 8 per cent in the month, and specifically exports to the US rose 3.9 per cent in annual terms.

Alberto Ramos at Goldman Sachs underscored a 0.2 per cent fall in imports of capital goods in February compared with January and a 4.4 per cent drop year-on-year “suggesting weak investment spending momentum”. But all other things being equal – ie no sudden change to trade arrangements – the trade balance should continue to improve, he said. A cheap peso – and even at its current level of 18.86 to the dollar, a far cry from the 22 it hit in January, the peso remains competitive – will help exporters.

The state statistics institute also revealed the economy was strengthening. The global indicator of economic activity rose 3 per cent in real terms in January compared to the same month in 2016, and a consensus forecast of 1.9 per cent growth. It grew 2.5 per cent in seasonally-adjusted terms. Manufacturing was buoyant and the volatile agricultural sector surged.

“The data even look okay if the month’s spike in agricultural activity is set aside,” said Bill Adams, senior international economist at PNC Financial Services Group.

Panic over then? Not so fast. While Mr Ramos noted that “the statistical carry-over for growth in 2017 is now tracking at 1.8 per cent – ie, were the economy to stay flat at the January level for the remainder of the year, real GDP would grow 1.8 per cent in 2017”, there are still risks.

Chief among them is Donald Trump’s tax and trade policy. Mexico is waiting for details of both a potential border adjustment tax, which would essentially tax imports, and the US’ objectives for renegotiation of Nafta, the 23-year old North American Free Trade Agreement. It hopes to get more details on both by May or June, and to be able to start Nafta negotiations this summer.

More conciliatory statements recently on Nafta have been greeted with encouragement in Mexico. All that could turn on a dime, but for now, Mexico can enjoy the relief.

As Mr Adam from PNC noted:

Downside risks from the Nafta renegotiation and trade uncertainty have not gone away, but US-Mexico trade relations are status quo for now, and financial markets seem to be betting that inertia will be as powerful a force in US trade policy as it is in US healthcare policy.

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