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Mexican infra can weather NAFTA downgrade, S&P says

A renegotiation of the treaty by President Trump could slow GDP growth but would not deal a knockout blow to Mexico’s infrastructure sector.

The Mexican infrastructure sector should be able weather a slowdown in economic growth stemming from a potential renegotiation of the North American Free Trade Association, according to Standard & Poor’s.

Noting US President Donald Trump’s criticism of NAFTA, an S&P report released last week concluded that a renegotiation of the treaty could harm the country’s energy and transportation sectors by weakening GDP growth in the short term. But the ratings agency said the country’s infrastructure sector should manage to navigate a period of slow growth, citing the strong credit quality of infrastructure-related entities.

“Regardless of what happens with NAFTA, Mexico must continue investing in its infrastructure to improve its global competitiveness and foster economic growth,” the report stated.

Mexico’s close economic ties to its northern neighbour make it vulnerable to changes in the relationship. Should ties between the countries sour, S&P noted, Mexico may have to adjust its energy strategy to reduce its reliance on imported natural gas and refined fuel from the US, from which it currently receives 600,000 barrels of petroleum per day.

Under President Peña Nieto, Mexico has pushed a series of energy reforms in the past five years, opening its oil and power sectors to the private market. Experts say these sectors may be among the least affected by a downgrade in the US-Mexico trade relationship, since Mexico is a large importer of US natural gas. Infrastructure, however, is more vulnerable, as damage to Mexican manufacturing would impact the sector.

Factoring in the threats to NAFTA, S&P forecasts Mexico’s GDP to grow by 1.8 percent this year, down from 2.1 percent growth in 2016.