No signs yet of major stress in Mexican markets

Financial conditions in Mexico have tightened over recent months, partly reflecting the central bank’s aggressive interest rate hikes in response to the falls in the peso. But there are no signs yet of more destabilising stress akin to the 2008 Global Financial Crisis that would signal a severe economic slowdown. Our financial conditions indicator shows that, while financial conditions have tightened since the middle of last year, they remain much looser than during the 2008-09 Global Financial Crisis. Nonetheless, given the large degree of uncertainty surrounding President Trump’s policies towards Mexico, financial conditions could yet deteriorate rapidly. This is likely to be one of the first signs of a much more severe downturn in the economy and it goes without saying that we’ll be watching closely.