Slowdown or stagnation? Question for Mexico in 2023

Exact forecasts for economic growth vary among specialists, but they all agree on one basic thing: 2023 comes with hurdles for Latin America’s second-largest economy. Possible recession in the United States, as well as the risks posed by higher inflation, will translate into less economic activity for Mexico. While the government expects growth between 1.2% and 3%, others do not rule out the possibility of a recession.

“suppose that The United States falls into a mild recession at the end of 2023 And it shows a growth of between 0.9 and 1.5%, after growing by about 2% in 2022, the Mexican economy could grow by about 1.7% in 2023, which would mean a slowdown, ”writes Gabriela Siler, director of economic analysis at Banco Base, in a report For customers, it is estimated that Mexico has grown this year by close to 3%.

The chance of the US falling into a mild recession by the end of next year, Seiler says, is 48%. And the economist adds: “If the recession is moderate or strong, it will also become a recession in Mexico due to the decline in exports.”

For its part, the Mexican Institute of Financial Executives (IMEF) has published the results of its latest survey, which show that specialists have slightly improved their GDP growth forecast for 2023. “Although the GDP growth forecast has improved marginally, from 1.1% in the survey November to 1.2% in the current survey; still a sharp slowdown compared to the 2022 estimate, the IMEF statement says.

In a press conference on Tuesday, IMEF President Alejandro Hernandez was pessimistic: “A slowdown scenario is quite possible and I think we are on the verge of a recession. I think that between this slowdown and a recession scenario there will not be much distance and we are talking about a very feasible percentage point of economic growth, especially if this happens The bad environment because of the government conditions in our country.”

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President Andrés Manuel López Obrador has passed a reform that benefits state energy companies, which could violate a free trade agreement with their North American counterparts, and has encouraged reform of the National Electoral Institute, which has autonomy. As of November, data from the Bank of Mexico showed that foreign capital had left the Mexican stock and bond markets for the ninth consecutive month, indicating a lack of investor confidence.

Among the factors behind the expected slowdown are slowing activity in the United States, persistent inflation around the world, and rising interest rates, but for some analysts, such as those with Focus Economics, insecurity in Mexico as well as domestic politics will also take its toll. . Country.

“Political uncertainty will undermine investment,” the company’s economists wrote in a report published last week. Trade tensions with the United States and Canada, economic recession in the United States, attempts by President López Obrador to undermine political checks and balances, and efforts by corporations to get closer are all risk factors. Focus Economics expects the economy to expand by 1.1% in 2023.

GDP is expected to close at 3.1% this year, driven by a strong recovery in the United States, the country’s main trading partner, as well as remittances sent from citizens abroad. The strength of the Mexican peso against the dollar has strengthened, in part due to the influx of foreign currency from remittances and tourism. For next year, Seiler expects it to depreciate until it trades above 20 pesos per dollar “given a slowdown in exports, remittances, and foreign direct investment, as well as the possibility of a decoupling of the Bank of Mexico’s monetary policy from the Federal Reserve of the States. It is estimated that the exchange rate could It stabilizes around 20.20 pesos per dollar and rises to a maximum of 20.50 pesos. Exceeding 20.50 pesos per dollar means a scenario of greater economic or political risks for Mexico, ”warns the specialist.

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It is estimated that inflation will close this year at around 8% and fall to the central bank’s target range by the end of 2023, according to Bank of America. The Bank expects inflation to close in 2023 at 4.6%.

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Aileen Morales

"Beer nerd. Food fanatic. Alcohol scholar. Tv practitioner. Writer. Troublemaker. Falls down a lot."

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