Mexican Economy To be Affected by Russia-Ukraine War: BBVA

Economies worldwide could be affected by the Russia-Ukraine war since the sanctions imposed on Russia have generated uncertainty among investors and could potentially impact credit. In particular, the Mexican economy could face repercussions in areas such as oil and gas and the country is already seeing the price of gasoline climb.

The economic sanctions imposed on Russia include the exclusion of some of its banks from the system that processes international payments. The US and the UK also announced an embargo on Russian oil and gas exports. These conditions could have repercussions for the rest of the world and if the conflict continues to drag on.

According to a study by BBVA, oil prices have increased significantly and the prices of raw materials will rise because Russia is a major exporter of metals and grains, particularly wheat. "The bottlenecks in global value chains, which were beginning to show signs of recovery after being greatly complicated by the pandemic, will worsen again as the transit of goods by sea will be affected by the conflict. These factors will be translated into higher-than-anticipated levels of inflation and, probably, into a more restrictive global monetary stance, which will bring headwinds to the recovery process," explains Carlos Serrano, Chief Economist, BBVA.

S&P also warned that the invasion disrupted financial markets, drove oil prices up and could lead to “profound and protracted effects on macroeconomic prospects and credit conditions around the world,” as reported by MBN.

The impact of the conflict on Mexico’s economy is yet to be determined. Mexico does not have a significant commercial relationship with Russia; only 0.1 percent of Mexico’s total exports head towards Russia and only 0.5 percent of Mexico’s imports come from that country. However, Mexico has an open economy with a manufacturing vocation, so it could be affected by higher transportation prices. In addition, higher inflation is expected because global energy prices are forecasted to increase, translating into higher gas and gasoline prices.

This morning, President Andrés Manuel López Obrador boasted that Mexico has less expensive gasoline than Germany or the US because of the lack of corruption in the country and because the profits from the increase in crude oil are sufficient to avoid the collection of the Special Tax on Production and Services (IEPS). 

The conflict is expected to lead to higher inflation, lower manufacturing production and a more restrictive monetary policy, which will take away momentum from economic growth. In Mexico, the peso has already suffered a setback due to the conflict between Russia and Ukraine, as previously mentioned by MBN.