Mexico is Well-Positioned to Tackle Future Economic Challenges

Following a visit to Mexico, experts of the International Monetary Fund (IMF) highlighted how the country’s strategy to stabilize the price of fuel has helped to reduce inflation by 2 percentage points. Nonetheless, Mexico’s GDP has footed the bill of the measure, as it lost out on 1.4 percentage points.

According to the group of experts, Mexico is positioned adequately to navigate the oncoming turbulent global environment due to its sound macroeconomic policies and solid frameworks for fiscal and monetary policy.

The IMF concluded after the annual review of the economic and financial conditions of the country that the Mexican economy will become somewhat weaker in the next two quarters as a consequence of the US’ moderate economic growth and because of the erosion caused by inflation. 

The organization considered that inflation will stabilize during 2Q23, and then gradually decrease in the subsequent quarters. It furthermore underscored the important role that the Bank of Mexico will play in publishing information about the trajectory of the monetary policy rate supported by its macro forecast. Experts suggested including the expected terminal rate of the adjustment cycle and its duration. 

Furthermore, they pointed out that the risk balance of Mexico’s growth perspective has a downward inclination while inflation is forecasted to increase. 

Among the risks that the IMF identified for the economy, it highlighted that global and domestic inflation will be more persistent if an increase in international fuel and food prices materializes and if the expected US downturn grows in force.

The experts applauded fiscal measures taken to mitigate inflation by the federal authorities. In fact, they estimated that the stabilization of fuel prices has limited their effect on the economy, which has helped to contain inflation. Nonetheless, the IMF noted that this measure has had a considerable budgetary and mainly benefitted households with higher incomes. 

Earlier this week, President  López Obrador, along with the Ministry of Finance and Public Credit (SHCP), presented an agreement to fight inflation. Within the framework of the agreement, 10 points were established, including a Universal License that the Federal government will extend to private companies to exempt them from all formalities or permits. The exceptions include permissions from the National Health, Safety and Quality Service (SENASICA) and the Federal Commission for Protection Against Health Risks (COFEPRIS), as well as the general import tax. 

Moreover, the government is expected to maintain the fuel and electricity price containment policy established in December 2018. Additionally, it will freeze the highway tolls for projects handed out through the National Infrastructure Fund (FONADIN) and Federal Ports and Bridges (CAPUFE) until Feb. 28, 2023, to maintain the purchasing power of Mexican families and prevent inflation from reaching 12 percent.