Mexico will weather the US slowdown and post higher-than-expected growth in December: Fitch

The mexican economy will achieve growth of 1.6% this year, reflecting the statistical carryover of sustained growth in the last quarter of last year and underpinned by the remittancesestimated economists from the rating agency Fitch.

This forecast is slightly higher than the 1.5% estimated in December and ratified by the director of sovereign analysis for Latin America, Shelly Shetty, who visited Mexico at the end of January. The agency’s projection is in the midpoint of the revised forecasts of Banco de México, but below the 3% that the Mexican government maintains as the base of its budget.

They consider that the interrupted recovery of key economic sectors such as automobile manufacturing and services can provide some support to the Mexican economy and mitigate the impact of the slowdown in the United States, which will continue to occur throughout the year and will end in a contraction towards the last quarter of 2023.

In its World Economic Outlook, which is updated by Fitch every three months, anticipate that the flow of remittances will tend to slow down as the US market cools. And since it is these resources that have supported consumption, this segment, which has been a growth engine for Mexico, could be affected.

In 2022 alone, Mexican families receiving remittances captured 58.497 million dollars this way in what was a historic entry. Consumption contributes 70% of GDP, but only 5.4 million families in the country receive remittances, and we must add the impact generated by inflation and the strength of the exchange rate on the return on the dollars received.

Nearshoring, raise expectations

Regarding nearshoring, which is how the relocation of suppliers is known in the face of growing trade tensions between the United States and China where they try to make supply chains shorter and more resilient, “evidence increasingly points to greater demand for Mexican production, exemplified by Tesla’s recent promise to invest in a factory in Nuevo León.

Industrial parks are reaching their maximum capacity at an average occupancy rate of more than 97% according to the Mexican Association of Private Industrial Parks, particularly in the manufacturing sector.

Additionally, they raised their inflation and interest rate forecasts, pointing out that core inflation for February remains high, at 8.3% annually. They estimate that the terminal rate will remain at 11.50%, which is half a point above where it is now, and will remain there from May until almost the last quarter, when they consider that a cut will come. They anticipate that inflation will be at an average 5% at the end of the year.

And for 2024 they anticipate a growth of 1.5% for the Mexican GDP and a variation of inflation of 4.5 percent with a rate of 9.50 points.

EU in recession at the end of the year

Fitch experts estimate that the US economy will enter a recession at the end of this year. However, they anticipate 1% growth for the US GDP for all of 2023, which will be impacted by the Fed’s restrictive policy. This estimate contrasts with the 0.2% forecast by Fitch in December.

Meanwhile, for the world economy they projected that it will register a growth of 2% this year, which incorporates an upward correction from 1.4%, which contemplates a better performance of China, which they foresee an expansion of 5.2% this year instead of the 4.1% estimated in December.