Mexico to Grow 3 Percent in 2022: Fitch Ratings

The Global Economic Outlook, presented by Fitch Ratings, forecasts further increases in interest rates by Mexico’ Central Bank (Banxico), leading to an economic slowdown in 2023. However, Fitch Ratings reformulated its previous growth forecasts for 2022, increasing its projection from 2.5 percent to 3 percent annual growth. 

However, Fitch indicated that growth forecasts for 2023 have worsen, mainly due to the prospect of faster-than-anticipated monetary policy tightening and deterioration in the Chinese property sector outlook. The Global Economic Outlook forecasts global growth to fall to 1.4 percent in 2023, joining 2008 and 2020 as the weakest years in terms of growth of this century. 

“Taming inflation is proving to be harder than expected as price pressures broaden and become more entrenched. Central bankers are having to take the gloves off. That will not be good for growth,” said Brian Coulton, Chief Economist, Fitch Ratings, via the Global Economic Outlook.

Fitch Ratings highlighted Mexico’s performance in 3Q22, with a better-than-expected performance of 4.3 percent year-on-year growth. Previous expectations pointed to 1.8 percent growth for 3Q22. Despite this performance and an increased growth rate for the entire year, Fitch Ratings maintained its 2023 growth projections at 1.4 percent and presented a forecast of 1.6 percent for 2024. 

“Banxico will continue to tighten its policies to avoid further de-anchoring of inflation expectations against the backdrop of stubbornly high inflation. We project that the policy rate will reach 10.50 percent by end-2022,” explained Fitch Ratings. 

The undeniable dependance on the US economy will alter Mexico’s performance, as the US is likely to face a recession in 2Q23. Fitch experts expect a decrease in manufacturing exports, which will hinder the most dynamic sector of the Mexican economy. The forecasted slowdown of the US economy will present numerous challenges for Mexico. 

Consumption has benefited from continued labor-market improvements and an overwhelming increase in remittance dispatching from the US. Remittances grew 19 percent year-on-year in September 2022, as inflation continues to batter consumption. Private investment has not recovered but remains 10 percent below its previous peak from July 2018. The electricity sector still proves uncertain due to numerous questions regarding its regulatory outlook, striking business indicators. 

“Near-shoring is an important growth opportunity for Mexico, given increased US-China tensions and manufacturers’ desire for shorter and more resilient supply chains due to current dislocations affecting supply and prices. Further reliance of the US on Mexican imports may limit the fallout from slower US growth,” explained Fitch Ratings via its Global Economic Outlook report.