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MEXICO: JP Morgan Expects Economy To Stall Amid Lingering Tariff Threats

MEXICO
EM BulletMexicoBulletEmerging Market NewsNorth America
  • JP Morgan's new base case is for growth to stall growth between 1Q and 3Q, leaving full-year growth at just 0.4%. However, a resumption of trade tensions could result in an outright recession and muted growth next year. Of note, a full 25% tariff scheme could result in a meaningful revision of nearly -3%-pts to GDP.
    • Following the tariff delay for goods covered by the USMCA, JPM estimates that around 15% of exports will remain subject to the 25% tariff. However, there is some uncertainty regarding what the USMCA carve-out implies.
    • If it were to include only goods that are classified as tariff-free under USMCA, non-USMCA goods could rise to as much as 50%. On the other hand, it is highly likely that most of what currently enters as duty-free under other arrangements shifts to USMCA, which could imply 10% is the lowest share of goods that will be subject to tariffs.
    • From a policy perspective, JPM expects fiscal policy to remain loose, with a 4.5% deficit. Meanwhile, economic slack and cooler domestic demand should align well with Banxico easing to near-neutral levels at 7.5% this year — particularly with inflation expected to remain tamed on the back of deeper economic slack.
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  • JP Morgan's new base case is for growth to stall growth between 1Q and 3Q, leaving full-year growth at just 0.4%. However, a resumption of trade tensions could result in an outright recession and muted growth next year. Of note, a full 25% tariff scheme could result in a meaningful revision of nearly -3%-pts to GDP.
    • Following the tariff delay for goods covered by the USMCA, JPM estimates that around 15% of exports will remain subject to the 25% tariff. However, there is some uncertainty regarding what the USMCA carve-out implies.
    • If it were to include only goods that are classified as tariff-free under USMCA, non-USMCA goods could rise to as much as 50%. On the other hand, it is highly likely that most of what currently enters as duty-free under other arrangements shifts to USMCA, which could imply 10% is the lowest share of goods that will be subject to tariffs.
    • From a policy perspective, JPM expects fiscal policy to remain loose, with a 4.5% deficit. Meanwhile, economic slack and cooler domestic demand should align well with Banxico easing to near-neutral levels at 7.5% this year — particularly with inflation expected to remain tamed on the back of deeper economic slack.