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External Signs of Improvement

January 21, 2020

The IMF in its forecasts for January revises marginally downwards - from 3.4 to 3.3% - the growth expectation of the world economy for 2020.

The adjustment for advanced economies is only -0.1%, for emerging economies it is -0.2%.

The forecast for Brazil increases from 2.0 to 2.2%, the one for Mexico reduces it from 1.3 to 1.0% considering the weakness of investment.

It recognizes a decrease in geo-political risks mainly due to Phase 1 of the trade agreement between the US and China, and an orderly Brexit.

The report acknowledges the resilience of consumption in the economies and signs of stabilization in manufacturing, although it does not yet consider that a turning point has been reached.

For Mexico, the US manufacturing activity is particularly relevant due to its high impact on our exports.

Although according to the December data, the US manufacturing industry registers a year-on-year fall of 1.3%, the January regional surveys of Philadelphia and NY show a rebound both in the activity area and in that of new orders.

This would be consistent with the rebound in China's industrial production and foreign trade.

The approval of the TMEC is in principle a factor that reduces uncertainty for Mexican exports and foreign investment.

The tightening of the rules of origin and labor content in the automotive industry could benefit the added value in Mexico, or redirect production to other destinations.

It will also be important how to implement the last clauses that the US achieved to ensure compliance with the labor reform by exporters installed in Mexico, as well as the activities of the personnel that will have to collaborate with the Secretary of Labor, workers and civil organizations for the same purpose (letter from Lighthizer to Jesús Seade).

In the short term, the most important thing will be the dynamics of demand in the US. China's commitment to increase the purchase of US manufactured goods by $ 78 billion (compared to 2017) within two years could help boost this industry.

Without forgetting that the US economy is in full employment and a possible rebound in demand (internal or external) for manufactured goods would be reflected in higher demand for Mexican exports, simply because there is a shortage of personnel north of the Rio Grande.

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