Mexican Businesses to Face Issues If NAFTA Changes

Mexican business will be exposed to risk if a change to the North American Free Trade Agreement (NAFTA) comes to fruition. The alcoholic beverage, automotive, manufacturing, property and real estate, and retail industries could be the most affected by a change in U.S. policies, said Fitch Ratings.

“A heightened degree of uncertainty regarding the impending renegotiation of the treaty remains and the prospect of disruption to the status quo over the short- to medium-term is evident,” according to a release from Fitch. Mexico could see a moderate deterioration in trade terms, said Fitch, but an impact to credit could be avoided.

“Operations abroad generate hard currency revenues and provide flexibility for a material portion of the portfolio and thus can mitigate the credit impact of potential trade disruption, though exporters are more exposed.” More than 40% of Mexican corporates operate abroad.

Initial issues would hit manufacturers while the second wave could slow the Mexican economy and have an effect on the exchange rate, among other things. “We believe these factors are likely to lead to a softer operating performance across the corporate sector until economic conditions start to pick up and a higher visibility of a potential outcome from trade negotiations is reached,” said Fitch, referring to a lower economic growth and higher inflation.

Fitch rates more than 80 companies in Mexico, and 85% of them have a stable outlook, while only one in 10 has a negative outlook. The other 5% have a positive outlook.

– Michael Miller, editorial associate

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