The Week in Finance: USMCA, Once Again on the Table

Mexico, Canada and the US signed on Tuesday modifications to the new agreement that formally relaunches the commercial relationship between the three countries. Though USMCA is bound to provide certainty for investors, medium-term risks still remain.

In case you missed it, this is what made the headlines over the week!

• Representatives from Canada, the US and Mexico came together on Tuesday to sign the revised USMCA. The signature came after weeks of intense revisions and renegotiation of topics, such as worker rights and prices for biologic drugs. In Mexico, the revision has already been approved by the Senate with only one vote against it. It is expected that US Representatives vote on the matter before Dec. 20, while the US Senate will vote until early 2020. According to President López Obrador, the agreement will strengthen the region and will promote investment, growth and well-being.
• Even though former Minister of Finance and Public Credit Carlos Urzúa said the administration’s goal was to achieve a 1 percent primary surplus in Mexico’s GDP, the current scenario of zero economic growth will impact negatively the surplus goal. According to Héctor Villareal, Director General of the Center for Economic Research (CIEP), the country will finish 2019 with a surplus ranging between 0.6 and 0.7 percent of the country’s GDP. The criticism against the surplus is that rather than being obtained through proper management of public spending, the Mexican governments has reached a surplus by holding back public investment.
• In November 2019, inflation reached 2.97 percent. The rate is lower than what was registered in October 2019, when inflation was at 3.02. The mark is the lowest registered since 2016 and is the first time in the year when it is below the 3 percent mark.
• According to BBVA, despite USMCA, mid-term risks still loom over the Mexican economy. Carlos Serrano, Chief Economist of BBVA, says domestic risks are increasingly reducing private investment. For growth to be reactivated, there needs to be certainty regarding the commercial relationship between Mexico and the North American market, says BBVA, as well as in the public policies set by the government. The bank is not the only one with a cautious vision of the Mexican economy. Ducker Frontier, a US-based consulting company, says economic activity in Mexico during 2020 will be impacted by not enough public resources and constant regulatory uncertainty, which will impact investment influx.
• The Tax Foundation states that in Mexico, the tax rate for corporations is above international standards. According to a study released by the think tank, in the 1980s the tax rate for corporations was in average 40.38 percent, while today the average is 24.18 percent. Still, in Mexico companies pay a 30 percent tax plus a 10 percent rate for employee profit participation (PTU).
• In 2019, Mexico City registered the highest FDI in 18 years. Between January and September 2019, the city received a total of US$6.5 billion. While investment attraction is good news, the private sector believes that insecurity is still taking a toll on growth rates and more investment attraction.