Oil, Trump, leave Mexico in dire economic straits

OECD expects slow growth out of a Mexican economy facing tough external pressures.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |   Jan. 11, 2017 at 8:43 AM
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MEXICO CITY, Jan. 11 (UPI) -- Mexico, the second largest economy in Latin America, is facing economic headwinds because of lower oil prices and U.S. trade policy, a study finds.

The New Year brought new challenges to Mexican President Enrique Peña Nieto as U.S. President-elect Donald Trump bore down in a series of pre-inauguration critiques targeting the nation's staple automotive manufacturing sector.

The Mexican peso has declined more than 10 percent since Trump's surprise election victory in November and foreign investors are wary of taking action given the president-elect's threats on higher tariffs and stiffer taxes for cars made for the U.S. market. Elsewhere, the Mexican president has faced domestic unrest after retail fuel prices skyrocketed following a deregulation effort that rang in 2017.

An economic survey from the Organization for Economic Co-operation and Development finds the external headwinds for the Mexican economy are strong.

"Against this highly complicated global backdrop, Mexico has had to face various headwinds such as collapsing oil prices, a restrictive monetary policy in the United States, and a sharp depreciation of the peso," OECD Secretary General Angel Gurria said in an address from Mexico City.

The OECD finds widespread economic disparities in Mexico, from varying production centers in the north and south to other inequalities, including a lack of opportunities for women.

The deregulation that caused gas prices to spike at the start of 2017 is part of a broader reform program meant to open the country up to outside oil investment for the first time since 1938, when the Mexican government took control of the country's oil industry and sidelined foreign investments.

Apart from that opening, Mexican state oil company Petróleos Mexicanos announced two recent oil discoveries in the deep waters of its territory of the Gulf of Mexico and four in the shallow waters, which could combine for a potential production rate of around 22,000 barrels of oil per day. All told, the discoveries contain, at the high end, an estimated 200 million barrels of oil equivalent.

Nevertheless, Gurria said that, even as the rise in crude oil prices offers some support to the Mexican economy, the global background is "highly complicated."

The OECD said it expected the Mexican economy to grow at around 2.3 percent this year and manage only a 0.1 percent gain next year.

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