Pemex’s woes turned Mexico into an oil importer. The current account could improve significantly if Pemex’s planned output increase materializes. Vulnerability would rise if Pemex underperforms, as gasoline imports would continue growing.
Pemex’s planned output increase has precedent, but is in the upper range of what others achieved. Shoring up Pemex involves a near-term fiscal cost, but could ease fiscal pressure in the medium-term. If Pemex disappoints, more fiscal cuts will be needed.
Bearish sentiment stems from policy concerns. Key risks are Pemex’s fragility and US tensions. Weakening growth will make fiscal targets challenging to meet and add pressure on the central bank to ease monetary policy. Market discipline and a robust macro framework should help limit policy slippage.
We assess the impact of potential policy surprises, using our BoP Nowcast and positioning toolkits. Low current account deficits pose limited risk, but in Mexico heavier positioning than in Brazil could amplify the impact of negative policy surprises.
In our last edition of Sticky Notes in 2018, we look at President Xi's reform anniversary speech, Venezuela's future, NAFTA termination, oil markets, and a potential U.S. government shutdown.
In this edition of Sticky Notes, we look at key issues facing the incoming U.S. Congress, new realities in Mexico, U.S.-China trade talks, and potential auto tariffs.
NAFTA gave a big push to trade and financial integration, favorably affecting Mexico Uncertainty over a possible reversal could weigh on growth, leadi
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