Outlook 2023

All economic forecasts are subject to considerable uncertainty. There is always a wide range of plausible outcomes for important economic variables.

Jerome Powell.

Next year will present for countries, companies and people, a set of known pressure factors in economic and financial terms; as well as others still uncertain that may add volatility.

In 2023, a double trend is anticipated: in the first part, the fight against inflation will continue and therefore the rise in rates; at least in the first part of the year, rates will rise, although at a slower pace, both in the United States (US) and in Mexico.

In the last third of the year, rates are expected to slow down and even, for some, the start of their reduction is expected in the US. This will depend on two conditions. How consistent is the reduction in inflation in the United States in the first months of the year and the visibility of a recession process (or at least a slowdown in the rate of economic growth).

If inflation is contained quickly and the economy enters a recessionary cycle, there is the possibility of a rate correction with reductions at the end of the year.

But for businesses and individuals, the average environment next year will generally be one of high rates. This will continue to exert pressure, both on the process of contracting new credits, and on the debt service (of countries and individuals).

There are at least two elements that will continue to put pressure on some prices at the international level. The first, the conflict in Ukraine will continue affecting energy and grains. This may cause the reduction of inflation to be a slower process than anticipated.

The second, China, which becomes a factor of instability in two ways. One related to the fact that, given the abrupt end of their zero Covid policy, which led them to very rapidly relax the controls they maintained for more than two years, has caused a high level of contagion and hospitalizations and deaths. . If this process gets out of control, we could once again face closures in strategic cities for the production of goods and a noticeable impact on international trade. A second element of instability is the temptation for China to regain control of Taiwan. Russia’s “experiment” with Ukraine can set a terrible example of territorial claims and that it perceives today that the negative consequences of an invasion are potentially “acceptable.”

In our country, internally, 2023 is a critical year due to important electoral processes such as the one in the state of Mexico, which for many will be a thermometer of the real strength of the opposition and the government and its allied parties, with a view to the election. of 2024.

There are also obvious temptations in different groups now linked to the government, to seek a potential extension of the mandate, given what they perceive (or argue) as unfavorable conditions for electoral institutions to “ensure” a free election. This, particularly after the failure to make fundamental changes in the electoral institutions. This situation could generate a perception of major risk towards Mexico, which ends up putting more pressure on the investment perspective, which for most national investors is already risky. This would prevent new investments from being carried out by national investors who have been less “moderated” and for international investors it would cause a stoppage, affecting the generation of jobs and growth.

raul@martinezsolares.com.mx