SVB Collapse Unnerves Financial Systems Worldwide

Last Friday, Silicon Valley Bank (SVB) collapsed, sending numerous financial systems across the world into a frenzy. However, MONEX and the Bank of Mexico (Banxico) announced this week that the collapse would not affect Mexican institutions since the sector is well-capitalized and has excellent liquidity. 

Meanwhile, the Ministry of Finance and Public Credit (SHCP) seeks to pour investments toward the modernization of key infrastructure for the arrival of foreign investment. Finally, the Organization for Economic Co-operation and Development (OECD) has revised Mexico’s economic growth forecast for 2023 and 2024, but analysts warn that the country faces a severe risk from climate change due to its dependence on fossil fuels. 

Interested in more? This is the Week in Finance! 

Banxico Presents Regional Economies Report for 4Q22

Banxico presented an in-depth analysis of economic activity, inflation and the perspectives of economic agents in different regions of Mexico. The research also includes perspectives from business executives on regional economic activities and price behavior for the following 12 months. Commercial activity expanded north and south in 4Q22 after tumbling in 3Q22, with contractions recorded in the central regions. However, Banxico noted that tourism increased in all regions during the period, as commercial banks expanded annually in all regions except the country’s center. Inflation decreased between 3Q22 and 4Q22 in all regions, a phenomenon attributed to reduced non-core inflation. 

Silicon Valley Bank’s Collapse: Sign of a Financial Storm?

The collapse of SVB keeps affecting markets, which fell sharply as investors feared that the damage would spread. Not long after news that Californian regulators had closed SVB, state regulators closed New York-based Signature Bank and just a few days later, stock at Swiss-based Credit Suisse fell sharply. While some fear further shocks in the financial sector, authorities from many countries, including Mexico, are working to assuage fears. MONEX and Banxico have said the collapse will not affect Mexican institutions, which are well-capitalized and have excellent liquidity. 

Mexico will Allocate Resources to Impulse Supply Chain Relocation

The SHCP explained that Mexico is at an advantageous position to benefit from the global relocation of supply chains. The ministry seeks to pour investments toward the modernization of key infrastructure for the arrival of foreign investments. Rogelio Ramírez de la O, Minister of Finance and Public Credit, highlighted that Mexico has strengthened economic integration with the US and Canada, which he attributes to the consolidation of Mexico’s productive profile and the arrival of strategic investments. Estimates indicate that joint efforts between the public and private sectors for the relocation of value chains have the potential to raise Mexico’s GDP by 1.2% and grow the industry by 30% during the next four years. 

OECD Revises Mexico’s Economic Forecast but Climate Fears Grow

The OECD has revised Mexico’s economic growth forecast upwards for 2023 and 2024 by two-tenths of a percentage point to 1.8% and 2.1%, respectively. However, analysts warn that the country faces a severe risk from climate change due to its dependence on fossil fuels. The OECD also predicts a slowdown this year and next compared to 2022, when Mexico’s GDP rose by 3%. The forecast also suggests a reduction in inflation, from 7.9% in 2022 to 5.9% in 2023 and 3.4% in 2024. Mexico, Brazil, Colombia and Venezuela face a “worst-case nightmare scenario” regarding the impact of climate change, warns Moody’s.