2017 border economy: Growth early, and then?

from Albuquerque Journal

What do economists expect for New Mexico’s border region in the New Year? So much of what goes on in the border industrial hub of Santa Teresa hinges on Mexico. Growth in the maquila assembly factories of Ciudad Juárez can lead to logistics, distribution and fabrication opportunities on the New Mexico side — and economists see a turndown coming in 2017.

Economists forecast some growth for the region in the first half of 2017 on both sides of the border, as budgets and plans set this past year continue to bear fruit. A manufacturing boom in Ciudad Juárez, tied to new factories, will boost cross-border commerce, and Santa Teresa stands to earn a piece of that business.

President-elect Donald Trump is the wild card in 2017. What happens once he takes office later this month is anybody’s guess. There are uncertainties tied to the direction Trump takes with respect to the economy, trade, infrastructure, immigration and relations with Mexico — all key to the health of the border economy.

Will he really push for a revocation or renegotiation of NAFTA, the trade agreement that underpins more than $560 billion in commerce with Mexico annually? What would significant deportations of Mexican citizens mean for the Mexican economy? Do his promises to invest in the nation’s infrastructure include border infrastructure such as ports of entry and highways.

The consensus forecast by the Border Region Modeling Project at UTEP predicts deceleration in Mexico in 2017 to 1.4 percent growth in “real” gross domestic product, which adjusts for inflation, down from about 2 percent growth in the last half of 2016.

Wells Fargo economists forecast “a mild recession” this year in Mexico, hinging on “the potential effect of new policies toward Mexico,” with GDP shrinking 1.1 percent. They identify “several potential threats to Mexican economic growth: trade agreements and dynamics but fundamentally foreign investment, remittances, and interest rates and inflation.”

What does that all mean for the border region, specifically?

“I think a lot of investment plans have been sidelined because of the threats to revoke NAFTA,” said Tom Fullerton, economics professor and trade expert at the University of Texas at El Paso.

Should the agreement be renegotiated instead, “there are areas where the three countries can agree and the agreement will survive largely in tact,” he said. “I think what companies are probably trying to do is avoid any announcements of expansions in Mexico that coincide with plant closures in the United States. I don’t think companies are avoiding investing in Mexico, but they want to avoid any appearance that they are shipping jobs overseas.”

Trump recently pressured air-conditioning and heating giant Carrier to keep about 800 jobs in Indiana while it moves hundreds of other jobs to its plants in northern Mexico — a move that could make some businesses wary of calling attention to themselves, particularly if their plans include projects south of the border.

Yet other projects are already in the works and moving forward, and a weak peso is likely to boost Mexican exports, making them cheaper for buyers abroad.

Take TPI Inc., an Arizona-based manufacturer of the enormous blades used in electricity-producing wind turbines. The company is putting the finishing touches on a second, 360,000-square-foot factory in Ciudad Juárez — a plant roughly the size of three city blocks. Many of the blades made there are stored on lots in Santa Teresa and trucked to their destination by Santa Teresa-based logistics companies.

UTEP economists predict manufacturing jobs growth in Ciudad Juárez of 2.6 percent in 2017, indicating the arrival of new plants and expansion of operations already there.

“I think in the more immediate term there is a ‘wait and see what he does’ attitude,” said Jerry Pacheco, president of the Santa Teresa-based Border Industrial Association. “There are companies that are postponing new investments until they figured out where (Trump) is going with this. We’re tied together with Mexico. We’re part of an international supply chain. Most of us here are not panicking. Let’s see whether the rhetoric turns into real policy.”

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