Navigating the economic landscape of the Americas: Key themes for the US, Canada, and Mexico

Meghna Shah, Chief Economist and Strategist recently hosted a webinar featuring Sébastien McMahon, Chief Strategist, Senior Economist & VP, Asset Allocation & Portfolio Manager, iA Global Asset Management, Carlos Serrano, Chief Economist, BBVA Mexico and John Velis, FX and Macro Strategy, BNY to highlight the key risks and opportunities for the US, Canadian and Mexican markets.  

As we delve into the economic narratives shaping the Americas, it's essential to understand the distinct themes influencing the United States, Canada, and Mexico. Each country faces unique challenges and opportunities that shape their economic outlooks and policy decisions. Here are the main themes for each nation and their implications.

United States: Economic resilience amidst uncertainty

1. Economic resilience and soft Landing

The US economy has displayed remarkable resilience in H1 2024, with faster-than-expected GDP growth suggesting a robust activity despite higher interest rates and inflationary pressures. The Federal Reserve's strategic maneuvers aim to guide the economy toward a soft landing, balancing growth and inflation control.

2. Interest rate policies

The Federal Reserve's "higher-for-longer" stance has significantly influenced market expectations and asset allocations. Anticipated future rate cuts will impact both large and small-cap stocks differently, shaping investment strategies and economic forecasts.

3. Housing market and inflation

Moderation in US home prices, driven by the Fed's rate hikes, highlights the ongoing struggle to balance supply and demand in the housing market. Additionally, the persistent upward revisions in the Fed's preferred inflation measure, the Personal Consumption Expenditures (PCE), underscore the complexities of managing inflation.

4. Political uncertainty

Upcoming elections and potential shifts in trade and immigration policies add layers of uncertainty to the US economic landscape. These political dynamics will influence fiscal policies, the dollar's value, and overall market stability.

Canada: Growth and policy adaptations

1. Demographic growth and economic impact

Canada's significant population growth, fueled by immigration, has reshaped its economic metrics, including GDP per capita and inflation rates. This growth has strained housing supply and prompted adjustments in monetary policy to manage inflationary pressures.

2. Interest rate cuts

The Bank of Canada has been proactive in cutting rates to support economic growth. Future rate cuts are expected to ease debt service ratios and support housing market, contributing to economic stability.

3. Household debt and savings

Despite high household debt service ratios, Canadians have increased their savings and benefited from rising asset values during the pandemic. This socio-economic context sets Canada apart from other economies and influences its policy decisions.

4. Economic diversification

Canada's economy, heavily reliant on natural resources and financial sectors, exhibits cyclical behavior. This cyclicality affects market performance and the country's response to global economic shifts, highlighting the need for diversification and resilience.  

Mexico: Opportunities and challenges

1. Nearshoring and trade benefits

Mexico has emerged as a key beneficiary of nearshoring trends and the US-China trade conflict, becoming the top exporter to the US. However, this economic boom also makes Mexico susceptible to shifts in US trade policies and global economic dynamics.

2. Economic deceleration

Despite the benefits of nearshoring, Mexico's economy is experiencing deceleration due to the completion of major infrastructure projects and other internal factors. This slowdown impacts investment levels and fiscal health, posing challenges for sustained growth.

3. Fiscal challenges and reforms

Mexico faces significant fiscal challenges, including a high budget deficit and the financial instability of Pemex, its state-owned oil company. Structural reforms in taxation and informality are crucial for improving fiscal sustainability and economic resilience.

4. Political and judicial risks

Political changes and potential judicial reforms create an uncertain investment climate in Mexico. The outcomes of upcoming elections will be pivotal in determining the direction of economic policies and overall stability.

Conclusion

The economic landscapes of the United States, Canada, and Mexico are shaped by diverse and dynamic themes, each presenting unique challenges and opportunities. Understanding these themes is crucial for policymakers, investors, and businesses navigating the complexities of the Americas' economies. As we move forward, keeping a close eye on these developments will be essential for making informed decisions and capitalizing on emerging opportunities in this vibrant region.