Canada’s trading relationship with Mexico is important. Annually its trade has grown to over $44B in two-way merchandise (source: government of Canada).
This week, like many countries, Mexico has begun a gradual reopening, however fears of a further escalation in the spread of COVID-19 virus persist as critics of the government voice concern over the handling of the pandemic. The economy has been in rapid decline and central bankers are assessing by how much to reduce the central bank interest rate. Half a percentage point appears to be the consensus, but will this be enough?
The Peso is close to an all-time low versus the US dollar and the Economist expects the country to fare the worst out of 42 major economies, contracting by a tenth this year.
The decline of the Mexican economy will not be a one-off story in 2020/21; we expect other countries to suffer similar consequences in the crisis. As we have written before (note our Brazil article earlier this week), the handling of the crisis by country leaders in the coming months will have subsequent second and third wave impacts over the next 12-18 months, both internally and externally (trading partners).
Canadian exporters should not rely on past business models in their decision making and seek advice and guidance on protecting themselves against downside risks, be that buyer financing or credit insurance.