Trump effect in Mexico may be priced in

Falling in line with a wave of lower estimates for Mexican 2017 GDP growth, the IMF decreased its forecast to 2.2% in its Article IV review for the nation released Tuesday, down from its previous estimate of 2.3% from early October.

The decrease is built around concerns over potentially protectionist practices. Without explicitly citing it, the country is clearly most exposed to the emergence of such practices from the administration of US president-elect Donald Trump starting January 20.

"The country remains exposed to external shocks, including risks of growing protectionism, given its strong financial and trade linkages with the rest of the world," read the report.

This has led ratings agencies and banks alike to lower forecasts. Moody's lowered its 2017 outlook to 1.9% from 2.5%, while J.P. Morgan, Citibanamex, Santander, CIBanco, Banco Multiva, Banorte-IXE and BlackRock all cut 2017 GDP forecasts between 0.4 and 1.2 percentage points, with the mean estimate moving to 1.7% from 2.2%.

One major area of concern has been peso depreciation and its potential to drive inflation. The weakening peso led Mexico's central bank last week to make a fifth rate hike since December 2015 to 5.25%. Another rate hike is expected before year's end.

The Mexican peso took an early hit with the US election, falling about 13% within the first few hours of the results arriving. The currency subsequently hit an historic low of 21.39 pesos to the US dollar, but has since recovered somewhat, trading mid-morning Tuesday at 20.5 per dollar.

In a report Tuesday, Capital Economics issued a research paper lowering concerns about the peso, even as it increased its 2016 closing exchange rate to 22.5:1 from the 18:1 rate it forecast under a likely victory for Hillary Clinton. For year-end 2017, the firm called for the peso to strengthen to 20:1 from its previous estimate of 17.5:1.

"While many analysts are scrambling to revise down their economic forecasts for Mexico and the rest of Latin America in the wake of Donald Trump's victory, for now we see little reason to make wholesale revisions. Likewise, while financial markets in the region initially sold off sharply following the election, the past few days have brought signs of stabilization. We suspect most of the bad news is now priced in."

The analysts at Capital Economics did lower its forecast "only modestly" to 1.8% from 2.2% for 2017 GDP, adding, "We're not convinced that demand for Mexico's exports is about to collapse."

The paper concluded, "We think the big falls in the region's currencies have probably now happened. Indeed, we don't expect any major trade protectionist measures, which would be the obvious trigger for further falls."