A Recession in the US Could Affect Mexico’s Economy
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A Recession in the US Could Affect Mexico’s Economy

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Sofía Hanna By Sofía Hanna | Journalist and Industry Analyst - Mon, 05/08/2023 - 16:57

The most significant risk to Mexican economic activity is an eventual recession in the US, warns MAPFRE Economics. However, the Mexican economy could benefit from the relocation of the production chains of US multinational companies. Mexico’s GDP is forecasted to grow to 1.2% in 2023 and 1.5% in 2024. 

The Mexican economy grew by 3.1% in 2022 and 3.7% in 4Q22, reads MAPRE’s report. Private consumption grew 6.0% year-over-year (YoY), investment 5.0% and exports 8.7%. Industrial production increased 3.0%, with good results in the computer, automotive manufacturing and construction segments. Retail sales continue to grow, being 2.5% up in December, but food sales fell by 3.6% mainly due to the effect of inflation. Factory orders point to increased activity, while business confidence is also up. 

The forecasts point to a slowdown in inflation, which stood at 6.9% in March, since the peak in September 2022. But there are still challenges to return to the monetary authorities’ target range. Core inflation remains high at 8.1%. Faced with a more complex disinflation process than expected, no immediate cuts to interest rates are expected, reads the report. However, the central bank has room to begin cuts in the second part of 2023 at the pace of the US Federal Reserve (Fed). To maintain exchange rate stability, the trajectory taken by Mexico’s central bank is unlikely to diverge significantly from that of the Fed, says MAPFRE. 

Among the main short-term risks to the Mexican economy is a possible recession in the US, which would spill over to Mexico due to its exports in the automotive and construction materials sectors. The disinflation process is costing more than expected and the restrictive monetary policy will continue to affect financing costs, consumption and investment, warns MAPFRE.

Nearshoring could benefit Mexico by bringing production lines from Southeast Asia closer to the country. Automobile production improved in January and February 2023, indicating a medium-term recovery trend. As a result, Mexican GDP growth is expected to reach 1.2% in 2023 and 1.5% in 2024, says MAPFRE.

Photo by:   MichaelJayBerlin, Envato

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