Mexico Beats Economic Growth Forecasts

A preliminary report carried out by the National Institute of Statistics and Geography (INEGI) showed that the Mexican economy grew 1 percent between April and June of 2022, surpassing predictions and representing a third consecutive quarter of growth.

According to a Reuters poll of analysts, the Gross Domestic Product (GDP) was expected to expand 0.8 percent in seasonally-adjusted terms during 2Q22, but INEGI reported a higher growth.

Nonetheless, analysts warn about a significant and unavoidable economic contraction in the event of a likely US recession. Alfredo Coutiño, Head of Latin America Economic Research, Moody’s Analytics, said that the probability for such an event to happen in the next year is highly probable. In that case, Mexico would be looking at prolonged inflation and a recession lasting three quarters.

Disruptions in global supply chains caused by the pandemic have led to product shortages in the market put pressure on prices. The onset of the Russian invasion of Ukraine has added to the inflationary pressures, increasing inflation rates to 20-year highs this year. By mid-April, 2022 inflation in Mexico had already reached an annual rate of 7.72 percent, almost four percent above Banxico’s target rate.

However, Mexican President López Obrador remains optimistic about the economy and expects that a recession will not materialize within the next 12 months. In an effort to fight rising inflation, the president recently announced the Package Against Inflation and Scarcity (PACIC), which seeks to contain price increases in the basic food basket (BFB) while incentivizing to grow the supply of products. To cushion the adverse inflation effects, López Obrador is seeking out deals with the private sector to avoid ballooning prices for at least 24 BFB products.

Moreover, the International Monetary Fund (IMF) published its revised World Economic Outlook for July, highlighting that Mexico’s GDP is expected to have a 0.4 percent increase, more than expected earlier in 2022. IMF reported that Mexico’s economy fell 8.1 percent in 2020 after the global shock from the COVID-19 pandemic. However, it noted a vital recovery of 4.8 percent in 2021 in a major rebound for the country. For 2022, the outlook predicts a 2.4 percent increase, as the country slowly moves toward pre-pandemic numbers.