Mexican Economy to Stall Next Year as US Slows, BofA Says

(Bloomberg) — Mexico’s economy will not grow in 2023 amid a US slowdown, higher interest rates and greater policy uncertainty, according to Bank of America Corp.

The bank cut its growth forecast for Latin America’s second-largest economy next year to 0% from a previous estimate of 1%, Carlos Capistran, chief economist for Mexico and Canada, wrote in a note Wednesday. For 2022, Mexico is expected to grow 1.9%, slightly above the previous 1.7% estimate, due to better-than-expected performance in the first part of the year, he said.

While gross domestic product beat expectations in the second quarter thanks to higher exports and record worker remittances, most economists see activity suffering from weaker demand from the US, the country’s top trading partner. 

“The main driver will be the US deceleration, in part driven by higher interest rates, which we expect to impact Mexico with a lag,” Capistran wrote in the note. “Domestic factors that will decelerate activity in Mexico are higher interest rates, still tight fiscal policy and renewed uncertainty given the USMCA dispute on energy.”

Mexico Activity Below Pre-Pandemic Levels, Faces Slow Growth

The US and Canada last month filed a dispute under the North American trade deal — known as USMCA — against the government of President Andres Manuel Lopez Obrador for its nationalist energy policy. The discord has added a shroud of policy uncertainty to Mexico’s economy as Lopez Obrador vowed to defend his country’s sovereignty in the case, while also insisting there wouldn’t be a “rupture” of the treaty.

The country’s GDP, hurt by subdued domestic demand, still hasn’t recovered to pre-pandemic levels and Capistran doesn’t see Mexico reaching those levels until the second part of 2023.

©2022 Bloomberg L.P.

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