Societe Generale’s Dev Ashish argues that the US decision to opt for annual USMCA reviews instead of a 16-year extension prolongs policy uncertainty for Mexico while leaving near-term trade flows intact. He sees muted MXN reaction as evidence markets anticipated this outcome, but warns that investment delays, higher risk premia and softer FDI could weigh on Mexico’s growth outlook.

Annual reviews weigh on investment plans

"The US decision not to proceed with a 16-year extension of the USMCA, opting instead for annual reviews through 2036, extends investment uncertainty in Mexico, even though trade flows are unlikely to be materially affected in the near term."

"However, the lack of longer-term policy certainty could keep investor appetite for large-scale capital commitments subdued over the coming quarters."

"Rather than pursuing major expansion projects, firms may continue to adopt an incremental, wait-and-see approach to investment until there is greater clarity on the future framework governing regional trade, manufacturing, and supply-chain integration."

"Nevertheless, the persistence of policy uncertainty could continue to weigh on Mexican assets."

"Elevated uncertainty may also raise risk premia and moderately weigh on FDI inflows, potentially delaying Mexico's hoped-for growth recovery."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)