Mexico faced a complex and uncertain economic environment during 1Q23 and the early 2Q23, explains the Bank of Mexico (Banxico). However, Banxico noted that various inflationary pressures continued to ease and that general inflation decreased in numerous countries. Nevertheless, inflation remained at elevated levels and its underlying component showed resistance to decrease.
Banxico added that global economic activity rebounded compared to 4Q22 via a press release. The bank also highlighted the challenges some banks in the US and the EU faced due to deposit runs by clients, as some of these institutions had to be rescued or sold. Banxico explained that this issue increased risk aversion and turbulence in international financial markets, causing most central banks to raise their benchmark rates.
The Mexican economy showed resilience in the domestic front regardless of the events affecting the banking systems of the US and the EU, which had a limited impact on Mexico’s financial system and inflation outlook. General inflation continued to decline, mainly due to the behavior of the non-underlying component and underlying inflation decreased gradually, although it remained high.
Banxico explained that the increase to the reference rate considered the evolution of the inflation outlook and the monetary stance and that it reduced the magnitude of upward adjustments and kept the rate unchanged in its latest decision. Banxico highlighted that the country’s persistently challenging situation forced the monetary stance to be strengthened during the period.
Moderation of general inflation reflected in the external environment in both advanced and emerging economies during the period due to reduced pressures on energy and food prices. Banxico highlighted that inflationary shocks continued to diminish, attributing it to the lifting of mobility restrictions in China and the normalization of global supply chains. However, inflationary pressures remained relevant, and the environment continued to be complex, noted Banxico.
The National Institute of Statistics and Geography (INEGI) reported that economic activity based on seasonally adjusted figures in Mexico saw a monthly decline in March 2023, as INEGI reports that Mexico's Global Economic Activity Indicator (IGAE) contracted by 0.3%. INEGI highlighted that when breaking down the economy's components and by using seasonally adjusted data, the monthly variation for the Mexican economy in March 2023 was as follows: primary activities contracted by 1.6%, secondary activities by 0.9% and tertiary activities by 0.1%, as reported by MBN.