Mexico’s GDP will grow 2.5% this year and 0.9% in 2023: Barclays

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

The expert anticipates an annual advance of 0.7% in the GDP for the third quarter, which would be confirmed this Monday 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 the entire year 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 The Economist last week, highlighted that the Foreign direct investment that was observed in 2021, of 31,700 million dollars incorporates new investments attracted by the proximity to the US market.

For this year, the data of the IED to the first semester, close to 28,000 million, is also evidence that investments in iron are arriving, he said.

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

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 outcome with the pandemic, he said.

He highlighted that Mexico stands out among its emerging peers in Latin America due to the stability of its Public financesdue to the institutionality of the Bank of Mexico and now, in the context of global uncertainty due to the Russian invasion of Ukrainealso stands out for its agreement with the United States.

Many call business relocation nearshoring. Others also call it Friendshoring. And how close can a supplier to the world’s largest market be, if it comes to a country that is its southern border and has a trade agreement, he asked.

Despite forecasting four quarters of activity close to zero, he ruled out qualifying it as a recession. That’s what he’s for Business Cycle Dating Committee and they speak only twice a year, and they are currently still reviewing the previous information, he said.

Long recession to lower EU inflation

The expert believes that the only way to reverse inflation in the United States will be by propitiating a recession. Unlike the one registered in 2020, the one to come will be shallower, but longer to guarantee that inflation will be brought down, he observed.

It projects that the United States will register a GDP of 1.7% this year that will contract by 0.1% by 2023.

We are not facing a US recession like the one in 2008 and 2009, with banks going bankrupt, nor do we have a sharp drop due to facing an unknown virus like the one in 2020. Today we are facing an inflation for which they have to cool down the economy , for a period of time to leave inflationary pressure well behind.

One on one with the Fed

To cool down the US economy, via monetary policy, it is expected that the Fed will direct another two increases in the rate of 75 points each, which will leave the rate at the end of the year at 4.50 points.

And he foresees an additional increase of 50 points for the meeting on January 31, with which he estimates the rate will reach 5.25 percent.

Banxico must continue to emulate the FED, because the most efficient channel for transmitting monetary policy in Mexico is the exchange rate. And the difference of 600 points between the two rates has been decisive in keeping the Mexican peso stable. Therefore, it cannot be undocked.

And since the financial channel for the transmission of a more aggressive monetary policy does not operate in Mexico due to low banking penetration, it is understood that inflation in Mexico will slow down as a result of the US recession, caused by the Fed.