Mexico could see future growth in demand for asset finance as it develops its economy under president-elect Andrés Manuel López Obrador, according to industry experts, but they have warned of a potential slowdown in automotive exports.
Speaking during an Economist Intelligence Unit webinar, Mexico Analyst Mark Keller said the country’s financial sector has an opportunity for growth because it’s not as developed as markets such as Brazil or Chile.
However, he cautioned that proposed revisions of the North American Free Trade Agreement (NAFTA) could result in a decline in Mexican automotive exports, as the two northernmost members may increasingly move production to home turf. This in turn could threaten Mexico’s internal demand for asset and auto finance.
Although the US and Mexico agreed the revisions on August 28, they have yet to be approved by Canada as the third member of the group.
Keller said: “It shows that the US and Mexico can cooperate when needs be. The sense I get from the Mexican press is that this is not the deal they wanted, but it’s better than nothing.
“It would really depend, at this point, what happens with Canada, and if the US and Canada are able to reach a deal. I don’t think there’s a lot that’s objectionable in it.
“What’s bad for Mexico in this deal is the increased requirement for components that are made by workers who make more than $16 an hour; that’s going to move more manufacturing away from Mexico and towards the US and Canada so that it focuses more on North America in general, which is a stagnant production market, particularly for automakers.”
However, he added that because there is little growth in the Canadian or US auto markets, it may be better for Mexico to look at other global export markets.
Keller added: “This is going to raise the cost of all inputs into automobiles, so it’s going to raise the cost of auto exports for Mexico. So perhaps we’ll see a renegotiation of the renegotiation in the future, but for now, it’s not great news for Mexico.”
