MEXICO CITY, Nov. 15 (Xinhua) -- Mexico's corporate sector is strong enough to absorb the shock if the North American Free Trade Agreement (NAFTA) was dismantled, Standard & Poor's Global Ratings said on Wednesday.
According to the agency, industries driven by consumer spending will be the worst hit by an end to the trade deal between Mexico, the United States and Canada. But other factors will come in to play to compensate.
If the withdrawal of NAFTA sparks greater volatility in the exchange rate, consumer confidence in Mexico could fall rapidly and affect consumer decisions, said S&P.
That would in turn lower growth expectations for companies that produce consumer goods and retailers, it added.
However, the sustained growth in consumer credit, coupled with record high remittances from Mexicans working abroad and the country's low unemployment rate will offset the risks of changes in trade.
In addition, some of Mexico's consumer goods manufacturers have diversified their markets, meaning they stand a lower chance of suffering from a disruption in output or exports.
Real estate companies could suffer in the medium term from a drop in demand for industrial space, the agency noted.
Despite the forecast, S&P said it was confident the three parties will successfully negotiate an updated NAFTA that largely preserves the trade and investment ties put in place since the trade deal was signed in 1994.
If NAFTA is abandoned, S&P said it believes trade between the members will continue given the economic benefits and production cost-efficiency derived from the high degree of supply chain integration that characterizes the North American region.
NAFTA negotiating teams kicked off a fifth round of talks on Wednesday in Mexico City on some of the thornier issues, including a U.S. proposal to alter rules of origin in the automotive sector, to include more components manufactured in the region.
Another controversial U.S. proposal calls for a so-called five-year "sunset clause," which would subject the deal to review and possible renegotiation every five years.
