Mexico cuts growth expectations are cut over US economic worries

• The Bank of Mexico has cut its growth forecast for 2023 from 2.4% to 1.6%.
• The bank didn’t change its prediction of 2.2% growth for 2022.
• Governor Victoria Rodrguez Ceja said, “We are facing a very complex environment”.

Mexico central bank cut its growth forecasts for 2023, saying that geopolitical uncertainty and a slowing US economy, which is the main market for Mexican exports, were to blame.

At a presentation of the bank’s quarterly report on Wednesday, governor Victoria Rodrguez Ceja said, “We are facing a very complex environment.”

In the report, the bank lowered its growth forecast for 2023 from 2.4% to 1.6%. The bank didn’t change its prediction of 2.2% growth for 2022.

The report said that Mexico’s economy faces risks from its neighbours, such as “slower growth of the US economy and industrial activity,” which lowers demand from other countries. About 80% of what Mexico sells abroad goes to the United States.

Banxico also said that the possibility of trade disputes with the US and Canada under the USMCA trade treaty “adds a new factor of uncertainty and risk that could affect investment decisions in the country.”

The United States and Canada have asked Mexico to talk about ways to settle their disagreements because they think that Mexican rules have made it harder to invest in renewable energy.

According to the paper, other economic threats that Mexico might face include a recession in the United States, high inflation around the world, and the consequences of the conflict in Ukraine.

On August 11, in response to inflation reaching a level not seen in the country for more than two decades, the Bank of Mexico increased its benchmark interest rate by three-quarters of a percentage point to 8.5 percent.

The central bank thinks that the annual rate of inflation will be 8.1% in the last quarter of 2022 and will keep going down in 2023.

Intercam Banco said in a note on Wednesday, “We believe that Banxico will still maintain a pace of aggressive rate hikes given the persistent surprises to the upside in inflation.”

“The persistent upward adjustment in local expectations and the Fed’s movements could keep them in a cycle of rate increases until the end of the year, which bring the target rate to at least 9.5 per cent.”