Economics: Global context complicates the Mexican economic outlook
As the international economic scenario continues to deteriorate and multilateral institutions and analysts alike scale back their growth estimates, we need to assess the extent to which a weaker economic outlook abroad, especially in the United States, is likely to affect Mexico. More specifically, we want to gauge the potential impact of two possible US scenarios for this year and next: a stalling of economic growth at a time when prices are spiraling sharply higher or an outright recession involving at least a 2-percentage point contraction of GDP.
After coming up flat in 2019 and 2020’s 8.3% pandemic-related contraction, Mexico GDP rebounded by almost five percent last year. And even if the economy should live up to current expectations of a 1.5% expansion this year it would still have a way to go to recoup 2018 levels. However, the exact direction of the US economy is likely to complicate the path to any full-fledged recovery. That road is already fraught with a perverse economic cycle locally in which the erosion of family economies is restricting private expenditure and investors have grown increasingly reluctant to allocate more money into fixed assets.
In this week’s issue we estimate the potential impact on Mexico’s macroeconomic framework of two US economic scenarios for next year, with one involving an economic stall (0% GDP growth) and the other a recession (a contraction of at least -2%). Either scenario bodes ill for Mexico’s GDP, the forces that normally power it, and the various goods and services production components. In short, most parts of the Mexican economy are likely to contract by the end of 2023 in this scenario, whether in response to a full-fledged contraction in US economic activity or a more restrained stall.
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