Peso depreciation will affect economic growth

Financial experts are divided on whether the depreciation of the Mexican peso is a good thing or a bad thing.

For the last six months, the Mexican peso has suffered a continual decline in value. This decline has proven to be a good thing in the way of tourism, exports and for expats residing in the country, however, the recent announcement of the growth estimates from the US Federal Reserve resulted in a fall in the US dollar.

Consulting experts from economic observatory México ¿cómo vamos?, an organization that promotes accelerated and sustained economic growth, met to discuss the dollar’s impact on the economic growth in Mexico. Of those who debated, 60 percent feel the depreciation of the peso will deliver a negative impact on the country while the remaining 40 percent felt the impact will be positive.

Isaac Katz, professor of ITAM and Jonathan Heath agreed that the appreciation of the dollar will have a negative effect on private consumption and private investment. In addition to causing an increase in inflation will reduce the purchasing power of wages and drive increases in interest rates.

Rodrigo García Verdú, an microeconomic observatory expert, said, “the important thing is to know what will happen to the real effective exchange rate (RER)”. The shifting exchange rate measures a unit of currency’s worth against another unit of currency and thus, measures the amount of goods and / or services can be traded from one country to another.

Juan Ignacio Gil-Antón, director of corporate insurance at Grupo Nacional Provincial (GNP) and México ¿cómo vamos?, noted that “many currencies are devalued against the dollar, even currencies that are stronger than the peso.

“It could be that we bounce back, relative to other currencies, and become more expensive,” Gil-Antón added.
Those who feel that the depreciation of the peso will have a positive effect on Mexico’s economy argued that “depreciation, when real, provides the economy with more competitiveness.”

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