NAFTA won’t solve Mexico’s slow growth: Moody’s

NAFTAMexico City : Mexico’s economy has structural flaws that will not be resolved with the upcoming renegotiation of the North American Free Trade Agreement (NAFTA), credit rating agency Moody’s has announced.

Mexico has for years relied on its poorly-paid work force to compete with other economies, and that is part of what is holding the country back, the agency said in a report on Wednesday.

When Mexico, the US and Canada signed the NAFTA and put it into effect in 1994, the trade deal was expected to help strengthen the Latin American country, “but Mexico has not attained the stellar growth rates that were anticipated from liberalising its economy”.

“Mexico has maintained its comparative advantage through negative real wage growth, at the expense of income levels. As a result, instead of converging through trade, wage and productivity, gaps with the US have widened,” the report said.

“Successful NAFTA talks alone will not fix structural impediments to Mexico’s growth,” senior analyst Madhavi Bokil wrote.

Mexico’s income gap with its North American neighbours will only get worse unless the country takes steps to address the problem, including tackling its huge informal, or underground economy, according to the report.

The three countries plan to start trade talks in Washington on August 16.



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