Among these fundamentals, fiscal prudence stands out, which has been preserved until 2022 and the autonomy of Banco de México, where the Governing Board has made clear efforts to ensure the anchoring of inflation expectations and the orderly operation of the financial system. The country is in a favorable situation from the balance of payments approach, with high currency flows to the country for exports, foreign direct investment, remittances and portfolio investment.
Within this effective balance, gross fixed investment flows continue to be 11.5% below the maximum levels registered five years ago and there are also challenges for economic growth, since GDP is barely returning to pre-pandemic levels, but there is still a lag of 0.4% with respect to maximum levels in the third quarter of 2018 and the expected growth of 3.1% for 2022 is driven by downward revisions in growth for 2021. For 2023, Banco de México projects a marked economic slowdown, with an annual growth of 1.8%.
The main engine of economic growth in Mexico has been exports, 80% of which are sent to the United States, so the main risk of a recession in Mexico is that a recession materializes in that country. It must be remembered that in an effort to control inflation, the Federal Reserve has raised interest rates aggressively and it is projected to reach a level above 5% in 2023. The effects of the rate increase are already being reflected in high financing costs in the US mortgage industry and a drop in home sales. According to a BASE econometric model, there is a 31% probability that the US economy will enter a recession.
Because the repercussions of US monetary policy on economic growth go beyond borders, everyone’s attention is focused on the level that the interest rate could reach the following year, since this has a great influence on the probability of occurrence of a recession.
Despite the fear caused by the anticipated economic slowdown and the adverse scenario of a moderate recession, I believe that there are enough positive elements on the balance that favor the country and that will allow us to overcome a 2023 full of challenges.