There will be serious consequences if authorities do not act against inflation: IMF

The authorities of the world have to act with the necessary firmness to face the problem of inflation. Otherwise, if one of them changes the direction of the policies that will help slow down price pressures, there will be serious consequences, warned the deputy director of the Department of Economic Studies of the International Monetary Fund (FMI), Petya Koeava.

The panorama that the IMF warns for Mexico is not very different from the one they have for the rest of the economies. The economic and financial outlook is skewed downwards and is also gloomy, he stressed.

Interviewed by The Economist, considers that the main task in Mexico is to solve inflation. At the IMF they expect that the rate will continue to enter the restrictive territory even next year. If price escalation is not stopped, households’ purchasing power will continue to tighten and inflation may take hold as consumers expect more pronounced inflation, he explained.

He referred that the nominal rate in Mexico barely reached a restrictive ground last August and that the IMF’s expectation is that it will continue to increase for the rest of the year and that it will remain high in 2023.

A few hours after presenting the World Economic Outlook (WEO), in the Annual Meetings, Koeava considers that the flow of remittances it may be a factor that will continue to help low-income households in Mexico to mitigate the impact of inflation. But in the context of a slowdown in the United States, they can also be compromised.

Mexico best located for environment

The official number two in the Department of Economic Research at the IMF highlighted the diagnosis made by the expert mission that visited Mexico as stipulated in Article IV of the Constitutive Agreement.

Mexico is in a better position to face the slowdown in the world economy since it does not have large fiscal or current account imbalances. He clarified that “as we have already seen during the pandemic, the Mexican workers who originate the shipments are very compassionate with their families in the country of origin.”

So he trusted that even if there is a greater slowdown than the one forecast right now by the Fund in the United States, the flow of remittances will moderate but they will continue to arrive.

In the revision of economic expectations that they released on Tuesday morning, within the World Economic Outlook (WEO), they cut their growth forecast for the United States by 2.8 points for this year, from the April forecast, to leave it at 0 increase. In the July update, they had adjusted it by one point to leave it at 1.8 percent

And they also revised their forecast for the US in 2023 by 0.7 points from April, putting GDP at 1.0 percent growth. The IMF’s scenario for Mexico also does not contemplate an economic contraction for this year or for the next.

I slow down but not fall

From his offices in the main IMF building in Washington, DC, Koeava stressed that Mexico’s economic trajectory is related to the performance of its main trading partner, the United States.

The exposure of the Mexican economy to the United States is very broad and is closely linked to the demand for manufactures and the flow of remittances.

Then, among the main risks for the Mexican economy, he highlighted a greater and much longer slowdown in that country, as well as the tightening of financial conditions.