U.S. withdrawal from the North American Free Trade Agreement (NAFTA) would lead to even slower growth for Mexico’s economy, credit rating agency Fitch said Monday.
“If the U.S. withdrew from NAFTA, the Mexican economy would face significant uncertainty, which would likely lead to an immediate confidence shock and short-term market volatility,” the agency said in presenting a report titled “How NAFTA Abrogation Would Affect Mexico.”
“Growth would slow through the medium term, from an already modest base,” with a negative impact on productivity “affecting potential growth rates through the medium and long term,” said the agency.
The forecast comes after a fourth round of talks aimed at modernizing the two-decade trade deal ended with “growing uncertainty” as to whether the three NAFTA members, Mexico, the U.S. and Canada, will successfully renegotiate the accord.
One of the more immediate effects of ending NAFTA would be the application of higher tariffs on Mexican exports, especially autos, and manufactured goods, the report noted.
The peso, which has already taken a hit from the uncertainty surrounding the renegotiation, is “highly likely” to depreciate further, the agency said, though it predicted that would “also enhance the competitiveness of export-oriented industries” in Mexico.
The fifth round of NAFTA renegotiation talks is to take place from Nov. 17 to 21 in Mexico City.