Mexico in an economic recession?

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Mexico is on the verge of a severe economic crisis. Your immediate future depends on the solution offered to the United States in immigration matters. It is practically a fact that the increasing tariff will come into force on June 10 with an initial rate of 5 percent.

And from that moment the pressure will be increasing for Mexico. If by July there is no agreement with the US, and the tariff increases to 10%, it is most likely that Mexico enters into an economic recession.

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If the increase in the tariff remains at its maximum of 25%, the consequences would be catastrophic for Mexico.

Black day

Yesterday, June 5, Mexico registered a set of negative events.

The first meeting between the representatives of the governments of Mexico and the United States was concluded without agreement, to discuss the growing tariff and the Central American migratory flow.

After the first meeting between the governments of Mexico and the United States, the rating agencies and the foreign exchange market reflected their concern.

In a few seconds the price of the peso against the dollar jumped from 19.55 to 19.80.

President Donald Trump warned that if today (Thursday) an agreement is not reached, the tariff of 5 percent will come into force on June 10.

Almost in parallel, the Fitch and Moody’s agencies made decisions regarding Mexico’s credit rating.

Fitch cut Mexico’s credit rating from triple “B +” to triple “B”, while Moody’s changed its credit outlook from Stable to Negative.

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Pemex, achilles heel

Although Fitch and Moody’s refer to the decomposition of the Mexico-United States commercial relationship, both coincide in the diagnosis: the condition of public finances is jeopardized by Pemex’s support programs.

They observe that fiscal discipline by Pemex is at risk but also by infrastructure projects and social programs. They are also concerned about the lack of certainty generated by the public policies of the current government.

The issue of concern for Mexico is undoubtedly tariffs. For the United States, its priorities are security and illegal migration.

The Secretary of Foreign Affairs, Marcelo Ebrard, acknowledged that the issue of tariffs was not discussed yesterday; only the immigration issue. He was pleased and optimistic with the dialogue. On the other hand, the vice president of the United States, Mike Pence, said that the negotiations will continue but he warned that Mexico must do more to solve the migratory crisis.

The situation is very delicate for Mexico due to the commercial tension with the United States. But it is also sensitive for the decisions of this government in energy, infrastructure and social programs, according to the diagnosis of the rating agencies.

The question is whether the Mexican government will evaluate a change in the direction it is taking. At the time.

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Walmart stumbles

Walmart de México stumbled upon the antitrust commission, in its incipient race to compete with the large international e-commerce firms that already have a foothold in Latin America.

The Federal Commission of Economic Competition (Cofece), chaired by Alejandra “Jana” Palacios, rejected the purchase by Walmart de México of Cornershop, a platform of orders at home that has become popular for ordering purchases from the supermarket, through Internet.

In September of last year, Walmart International announced the purchase of the disruptive “startup” Cornershop in 225 million dollars, with the intention of selling it to Walmart of Mexico and Central America.

The competition body considers that the acquisition would result in a concentration that would generate risks for the Mexican market.

Walmart de México with its current digital platform added to Cornershop may not enter other Cornershop competing platforms and may deny entry to its platform to other stores.

Both actions would reduce purchase options to consumers.

Digital signatures

There is a fundamental point from which Cofece focuses its analysis: the challenge that e-commerce represents. The challenge of analyzing operations between digital companies.

In 2017, Harvard Business Review asked a group of companies about their future in the new business models.

50% responded that by 2020 the traditional model, by which consumers buy in commercial premises, will be obsolete.

And is that digital companies are growing at an accelerated pace.

A couple of facts about it. In 2010, two companies linked to the digital economy: Apple and Microsoft, ranked among the first five largest in the US.

Today the five largest are Apple, Alphabet (Google), Microsoft, Amazon and Facebook.

The challenge for traditional companies is not to let these digital businesses, which compete directly with them by consumers, eat them the cake, for it has two soups: 1) grow organically, invest and develop their own digital platforms or 2) buy the existing, merge or ally. And it is precisely in the second alternative that the competition authorities enter.

Its challenge is to make a fine analysis to ensure that competition prevails between traditional and disruptive, and at the same time prevent the creation of groups with market power that prevent the arrival of others.

Marco A.Mares

Marco A.Mares

JournalistRich and Powerful

He has worked uninterruptedly in newspapers, magazines, radio, television, and internet, in the last 31 years he has specialized in business, finance and economy. He is one of the three drivers of the Alebrijes, Águila or Sol program, a program specialized in economic issues that is broadcast on Foro TV.

Source: el economista

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