Mexico will resist the slowdown in the United States thanks to consumption

The consumption of Mexico is the factor that will allow Mexico to resist the economic slowdown that the United States will register this year, estimated the CEO and founder of the international consultancy Valerio Consulting Group, Alejandro Valerio.

Consumption contributes 70% of the Mexican GDP and will remain supported by remittances, government subsidies, which are the big winners of the budget; the recovery of the formal labor market in the main sectors: manufacturing, construction and services, which are above pre-pandemic levels, and exports that will continue to be quite healthy, he argued.

He estimated that the Mexican GDP will register a growth of 1% this year; a forecast that represents a slowdown from 2.8% that the economy would have achieved in 2022.

He stressed that last year, in November, exports were still strong, particularly automotive. And the flow of new investments that the nearshoring phenomenon has brought, a solid inflow of remittances, arrival of tourists as well as new investments was confirmed.

He highlighted that in November and December manufacturing orders were still positive; To illustrate, he recalled that from January to November, Mexico exported just over 500,000 million dollars, where automotive manufacturing grew 15% annually.

He qualified that in December, manufacturing orders did fall 0.6% annually and will continue to decline in January and February, reflecting the slowdown in the United States.

Moderation started in December

For the strategist, the expectation is that the United States will not contract. It will register a slowdown that will leave a minimum of positive growth between 0.5 and 0.8%. “There are many trillions of dollars of expansion that will also help Mexico,” he stressed.

Although he expects a slowdown in the United States in the first half of next year starting in November, it will by no means mean a drop in manufacturing orders or remittances.

Flows and orders will surely moderate but they will continue to be positive. They will not have a remittance flow of 58,000 million dollars as was the case in 2022, but if anything they will register an inflow of 50,000 million that will continue to support families and consumption.

If at some point the United States registers negative numbers, Mexico would reflect it as it happened in 2020, when the US fell 3% and Mexico did so by 8 percent.

That will not be the case this year. The difference will be consumption.

Services, the other hope

Analysts from the Fitch rating agency estimate that Mexico’s economic activity will register growth of 1.4% this year while the United States will barely reach a 0.2% increase in its GDP.

“This growth estimate is not very good in itself, but it does reflect Mexico’s resilience considering the context,” said Todd Martínez, director of sovereign groups at Fitch Ratings.

Mexico is the emerging economy in Latin America that took the longest to recover its pre-pandemic levels and this trend tells us about a slow recovery of real GDP after the crisis, he stressed in a webinar.

Right there, the executive director of sovereigns at Fitch, Shelly Shetty, commented that Mexico’s slow economic recovery opens the opportunity for productive sectors that were affected by the pandemic to continue to normalize, such as services, which gives room to also wait for a new advance.

Tourism and oil, other sources

The Valerio Consulting Group expert also stressed that his forecast incorporates the possibility that upper-middle-income tourists will continue to arrive in Mexico, which will also encourage consumption and services. And he added that oil revenues are another positive factor from oil prices that will be above the government’s budget.

Since last year, the price of the Mexican mixture was 100% above the budgeted by the government, which gave a substantial increase that allowed the government to have surpluses to subsidize gasoline and financially support Pemex.

Valerio’s Mexican GDP forecast is in line with the 1% average that the market has according to information collected by Citibanamex; close to the 0.9% projected by the World Bank and below the range estimated by the Mexican government in its federal budget, which is between 1.2% and 3 percent.

ymorales@eleconomista.com.mx