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The Outlook for Global Trade and Mexican Exports in 2023

By Paulina Aguilar Vela - Mundi
Country Director and Co-Funder


Paulina Aguilar Vela By Paulina Aguilar Vela | Country Director and Co-Founder - Tue, 02/14/2023 - 15:00

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A challenging year has begun for the economy in Latin America, especially for Mexico. The World Bank recently cut its Gross Domestic Product (GDP) growth projection for the region to 1.3% and for Mexico, projections were reduced even further to just 0.9% by the end of 2023.

A slower economic expansion in the region, along with the prevailing high inflation, will have a direct impact on the behavior of global and regional trade, making it slower and less dynamic, despite the positive figures with which it wrapped up 2022.

The UN Conference on Trade and Development (UNCTAD) recently predicted that the value of global trade will reach a new all-time high when the 2022 results are consolidated, reaching US$32 trillion, a year-on-year growth of almost 12%.

But along with the positive report, it was noted that 2023 will depend on how political tensions in the world play out, the same tensions that have been driving inflation for the past year. Also, product prices will impact countries' imports/exports and public debt could reach historic levels, as countries strive to have a softer landing in the recession.

Undoubtedly, these factors  lead to one conclusion: the negative trends seem to outweigh the positive.

Such is the impact of global macroeconomic factors seen since 2022, that the growth of world trade is expected to be slower than the global economy until 2031. The figures were provided by Boston Consulting Group, explaining that global trade growth will average 2.3% over the next 10 years, compared to a global GDP of 2.5% on average per year over the same period.

Mexico’s National Trade

Mexico, which is one of the countries with the highest export and import figures in Latin America, was already showing a deceleration in its international trade since the first half of 2022.

One of the trends that reflects this situation is in exports, which between January and June 2022, showed lower growth than the regional average,18.8% versus 22.2%, respectively, according to ECLAC. This, considering that 88% of the country's exports are made up of manufactured goods.

And here comes a fundamental factor: the recession in the US, greatly anticipated by different market players, will take its toll on Mexico's exports.

In 2021, 78% of Mexican exports of goods and 82% of oil shipments were to the US. The trend, which is now habituated, was also seen in the first half of 2022, when non-oil export growth of 16.4% was led by shipments to the US.

However, not everything in relation to Mexico's main trading partner is bad. It may be that 2023 will not have the best results for Mexico's international trade, but the policies that Mexico is pursuing will have a positive impact on the country in the medium term.

Nearshoring will be the key to these results, as it will strengthen the country's productive capacity and encourage foreign direct investment. This will lead Mexico to grow as an export power in Latin America.

This transfer of commercial activities even has measurable results in the short term: a 10% increase in productivity for the participating country, an increase of between 11% and 14% in GDP, and increased hiring with better salaries, according to Inter-American Development Bank (IDB) estimates.

Even so, it should be noted that the business environment maintained by the Mexican government and the legal security it promotes will be key for nearshoring to develop its full potential.

In addition, the economic integration of the region should become a priority on the different governments' international agenda, especially in view of the regionalization processes that are already being implemented by economic powers like he US and the EU itself, due to geopolitical tensions and after the worst moments of the COVID19 pandemic.

As ECLAC pointed out in its document on the Prospects for International Trade in Latin America and the Caribbean: Progress toward the creation of an integrated regional market, through a progressive convergence of the various subregional groupings, it is essential not only to generate efficient scales of production and promote productive and export diversification processes, but also to achieve greater autonomy in strategic sectors.

Global Trade

At the global level, different fragilities can also be foreseen, as major economies enter recession and as many of them are moving away from globalization and betting on nearshoring.

Factors include the ongoing trade war between the US and China, interests that each administration will continue to defend with export restrictions and controls.

In addition, government spending to boost industrial sectors appears to be a strategic move by economic powers. Beijing is already doing so with its semiconductor and clean energy technology sectors, while Joe Biden's administration is pushing federal initiatives to boost manufacturing in the country.

Finally, the offshoring of supply chains will be a trend this year and one that will have results in the medium term, given that if the pattern accelerates and chains are moved away from authoritarian regimes (as proposed by the US), market access will be improved.

Photo by:   Paulina Aguilar Vega

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