US recession will lead Mexico to zero growth in 2023: BofA

The US economy will record a 0.6% contraction next year and Mexico will experience several quarters with negative performance.

This is the outlook that Bank of America Securities (BofA Securities) has for 2023, according to its chief economist for Mexico, Carlos Capistrán.

The strategist maintained his forecast of zero growth for Mexico’s Gross Domestic Product (GDP), as it had been since June, and stressed that it will be a direct consequence of the sharp slowdown in the United States.

Interviewed by El Economista, he acknowledged that the relocation of US companies to Mexico could cushion the slowdown, but stated that the risks remain biased downward due to the impact that the United States has on exports.

Data from the International Monetary Fund (IMF) show that exports to the United States represent 40% of Mexican GDP.

The strategist noted that the rise in rates being applied by the United States, Mexico and other countries suggests that in the next year we will see recessions in the world with inflation still above central bank targets, but already moderating.

He explained that Banco de México has to prevent the inflation that is coming from abroad from amplifying, trying to keep the exchange rate stable.

Therefore, it considers that it will continue to raise the rate one by one with the Fed.

Thus, for the monetary meeting scheduled for November 10, Capistrán anticipates that a new increase of 75 base points is coming, the fourth in a row of this cycle, which will reflect the same magnitude that he anticipates for the announcement of the Federal Reserve.

And he estimates that the last monetary decision of the year will be an increase of half a percentage point, which will leave the rate at 9.50 percent.

It anticipates that the magnitude of the increases in the Mexican rate will be a reflection of what BofA Securities expects for the United States.

According to its forecasts, the Federal Open Market Committee of the Fed will leave the rate at 4.50% at the end of the year, with an increase of 75 basis points on November 2 and one more than half a point for the last decision of the year scheduled for December 14th.

BofA Securities estimates that the terminal rate of the upward cycle in Mexico will be 11%, while that of the United States will be 5 percent.

Capistrán projected that inflation in Mexico will end this year with a variation of 8.4% and that in 2023 it will register an annual fluctuation of 4.6 percent.

But he warns that the trajectory brought by underlying inflation in Mexico generates upward risks in his forecasts.

Mexican inflation observed a level of 8.74% in September, with more than 20 months of upward trend while core inflation completed 18 consecutive months of growth.

ymorales@eleconomista.mx