GDP to grow 2.5% this year and ward off US recession in 2023, thanks to nearshoring: Barclays

The Gross Domestic Product (GDP) of Mexico will register a growth of 2.5% this year, which incorporates a marked slowdown towards the last part of the year, estimated the Barclays chief economist for Mexico and Latin America, Gabriel Casillas.

The expert anticipates a quarterly advance of 0.7% in the GDP for the third quarter, which would be confirmed today by the Inegi, and a more marked slowdown for the last quarter, which would remain at 0.1 percent.

During a visit to Mexico, he projected that next year, Mexican activity will continue to moderate to show zero growth in the first quarter and a negative performance of 0.1% for the April-June period.

This scenario will show an advance of 0.9% for all of 2023, which will be the result of the recession in which the United States will fall, he predicted.

At a press conference, he stressed that the relocation of companies to the north of Mexico is a reality that began to be observed since last year.

As he explained exclusively to El Economista, the expert highlighted that the world is deglobalizing and evidence is that companies are relocating to get closer to their business partners, in what they call nearshoring or friendshoring due to geopolitical conflicts and the impact that the closure of factories has had in the face of zero Covid policies.

This relocation of companies has been effective for the Mexican case since last year, when Foreign Direct Investment (FDI) amounted to 31.7 billion dollars, a figure that incorporates new investments attracted by proximity to the US market.

For this year, the FDI data for the first semester, close to 28,000 million, is also evidence that investments in iron are arriving.

If the administration changed the rhetoric toward business, these numbers could reach 50 billion.

Six-year GDP of zero, due to pandemic

He estimated that the GDP for the entire six-year term will be close to zero, but clarified that 80% of this result is attributable to the pandemic. Anyone leading the country would have had a similar impact, she said.

He stressed that Mexico stands out among its emerging peers in Latin America for the stability of its public finances, for the institutionality of the Bank of Mexico and now, in the context of global uncertainty due to Russia’s invasion of Ukraine, it also stands out for its agreement with USA.

Long recession to lower EU inflation

He considers that the only way to reverse inflation in the US will be by propitiating a recession. Unlike the one observed in 2020, the one to come will be shallower, but longer to guarantee that inflation will be brought down.

It projects that the US GDP will grow 1.7% this year and that it will contract by 0.1% by 2023. “We are not facing a US recession like the one in 2008 and 2009, with banks failing, nor do we have a sharp fall to face to an unknown virus like the one in 2020.”

To cool down the US economy, the Fed is expected to lead two more rate hikes of 75 basis points each, leaving the rate at 4.50% by the end of the year.

ymorales@eleconomista.mx