Economics: Balance of payments data are mixed, with incipient problems in foreign trade, the private sector forex surplus and FDI

MEXICO - Report 12 Dec 2023 by Mauricio Gonzalez and Francisco González

Banco de México presented its balance of payments report for the third quarter and for the first nine months of 2023. While the results were largely in keeping with what we have seen for recent quarters, they contained several aspects that warrant further examination.

The first is the gradual but continuous weakening of foreign trade that extends to both exports and imports. Second is the gradual reduction of the foreign exchange surplus in the private market; while that surplus remains substantial, it exhibited a clear downward trend despite the sustained increase in international remittances and could have an adverse impact on the future evolution of the exchange rate. Third is the poor performance of foreign direct investment despite the continuing resilience of remittances and fourth, the evolution of financial assets and foreign holdings of government securities and other financial assets, with data pointing to capital outflows despite the considerable interest rate differential between Mexico and the US.

As of the third quarter, foreign exchange flows in the private market have remained high, a situation that helps explain the strength of the peso. However, as we anticipated several months ago, they have been trending downward.

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