Digitalization of Personal Finance Now a Reality in Mexico

Q: Given the setbacks that Mexico is facing financially, what does the future of the Mexican economy look like and where can the biggest repercussions be seen?

A: At the moment, the environment is highly uncertain, preventing us from outlining a clear path for the following years. The global economy continues to face several challenges that have triggered generalized downward revisions to short-term GDP growth forecasts.

Mexico faces similar challenges to those of neighboring countries, given the interconnectedness of their economies. In that sense, a sharp deceleration or even a recession in the US would directly impact the Mexican GDP through diminished manufacturing activity and external demand, which have historically been two of the country’s major economic growth drivers.

During the first half of the year, the internal demand has been resilient. The ability of the economy to keep momentum going on this front will be a determinant for GDP growth.

Q: What can be expected from the international economy in the coming years?

A: We expect heightened volatility in global financial markets and macroeconomic variables to remain. We call this a “new normal,” which contrasts with the regular pattern of growth cycles of the past few decades when the world reached the so-called Great Moderation characterized by lower volatility and more predictable outcomes. After the COVID-19 pandemic and the Russia-Ukraine war, volatility has become the norm.

The silver lining is that Mexico keeps a privileged position in the process of reconfiguration of global supply chains. Its geographic location, qualified labor force and participation in the USMCA allows a significant potential for economic growth. However, an unfavorable climate for doing business and poor rule of law may prevent the major investments that are needed to take full advantage of this great opportunity.

Q: Given that the economic climate is not optimal, what role does investment play in times like these?

A: Investment allows us to smooth out consumption over time. This is key in the financial life of any individual or organization. On the one hand, it allows you to build a cushion over time to endure hardships. On the other, it can turn challenging times into opportunities, as many assets that lose value during hard times will later provide higher returns. These investments cannot be undertaken blindly, though a certain degree of expertise is required.

Q: What is Mexico’s status regarding financial penetration?

A: Mexico’s financial penetration still has a long way to go, as shown by its credit-to-GDP ratio. According to the National Institute of Statistics and Geography (INEGI) Mexico’s credit-to-GDP ratio was a little less than 40 percent in 2020. When compared to other countries in Latin America, the country has the lowest financial penetration in the region, except for Argentina.

Less than 50 percent of the population above 18 years old has a bank account. Of those people, only 10 percent actively save in the formal market. There is a very large sidelined market and digitalization is a critical tool that could help the country address it; for example, through digital retail investing.

Q: How is Finamex enhancing the use of financial tools without relying solely on savings?

A: We are tackling the large available market by digitalizing our tools to make them more accessible for our clients. “Más Pesos” is our newest product. It allows users to invest as little as MX$100 (US$4.9) so they can actively participate in financial markets. This has allowed us to enter new markets and share the benefits of investing with those who sometimes see it as complex and risky activity, especially when compared to more traditional, less profitable saving methods.

Many firms are starting to look at these markets, and competition in the sector is definitely increasing. This is good for the overall economic environment. 

Q: What should the finances of an average Mexican look like in 2022 to be prepared for inflation?

A: Diversification is always key when investing in financial markets. Assets whose value is somehow protected against the rise in prices, such as inflation-linked products, are very popular in times like this. Financial instruments related to the real estate sector have also become very defensive. During these times, it is also good to look for short- rather than long-term investments.

Financial markets have evolved so much that there are instruments that basically protect investors against anything they can imagine. It is just a matter of developing certain expertise or approaching experts on the subject for guidance.

Q: What is Finamex’s outlook for the Mexican economy in 2023?

A: We are expecting a 1.5 percent increase in GDP. This is a low number because the country is still below pre-pandemic levels. We expect to return to those levels by the second or third quarter of 2023.

Inflation should gradually decrease from expected levels above 8 percent for year-end 2022 to about 5 percent by the end of 2023. The Mexican peso would likely remain stable in a large extent due to the anticipated increases in domestic interest rates and because of the significant spread that prevails between Mexico and US rates.

Casa de Bolsa Finamex offers financial services to individual, corporate or professional investors in the Mexican capital, derivatives and foreign exchange markets.