from the Dallas Fed
— this post authored by Jesus Canas
Mexico’s economy expanded in 2017 at its slowest pace in four years – growing 1.5 percent in real (inflation adjusted) terms following a 3.3 percent gain in 2016.
Trade policy uncertainty following the U.S. presidential election weakened the peso, which led to higher prices for imported goods and boosted inflation. A reduction of gasoline price subsidies in January 2017 – part of an energy reform agenda in place since 2014 – also contributed to higher inflation. Overall price increases peaked at a 6.8 percent annual rate in December.
Banco de México responded with five interest rate increases, taking the policy rate from 5.75 percent to 7.25 percent by year-end. Higher interest rates not only increased borrowing costs, but also likely slowed economic activity.
Meanwhile, the U.S., Mexico and Canada entered North American Free Trade Agreement (NAFTA) renegotiations which, after a year, have made little apparent progress.
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Source:
https://www.dallasfed.org/research/swe/2018/~/ media/documents/ research/swe/ 2018/ swe1801e.pdf
