Is recession coming in Mexico? – Finance

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Is recession coming in Mexico?  – Finance

Some readers have asked me if a recession is imminent in Mexico.

The answer is clear no. At least not yet.

It is true that central banks’ response to high inflation by raising interest rates more aggressively than expected could lead to a slowdown in demand and in some countries to a recession, yes.

However, the data available so far in our country indicates that it is not imminent that the slowdown in the growth rate will translate into a decrease in economic activity, at least during this year and perhaps not in 2023 either.

Mexico is clearly subject to what will happen in the United States.

In our neighbor to the north, despite growing fears of a recession, experts in most cases do not anticipate a deep economic meltdown or the brakes lasting for months.

The strength that consumption still has will generate resistance to a more severe recession.

The US retail sales figure for June released last Friday reflected 1% monthly growth, higher than expected. The data is a sign that there is still an important dynamism in consumption.

It is likely that the savings that North American households have, resulting from fiscal and monetary stimulus in recent years, will allow them to withstand lower economic activity without having to reduce consumption significantly.

For Mexico, this fact is very important, because if the economy of the United States slows down a little and it happens for a short time, then the level of our country’s exports will be affected less and with it economic activity.

Although there is no financial support from the government in our country during the pandemic, and therefore families do not have a reserve of resources as in the United States, domestic consumption still resists.

Some recent indicators, such as the BBVA consumption watch for June, are pointing to 1 percent growth from the previous month after faltering in May.

Other data, such as sales to comparable stores by ANTAD, which reported a nominal increase of 7.9 percent, reflect resistance to declining consumption.

If you combine a slight brake on exports with a continuing dynamic of consumption, then what you have is a panorama in which there is not a recession, but a slowdown in economic activity.

Last week, the BBVA’s Economic Studies District revised its estimates of economic growth for this year and for 2023. For 2022, forecasts are that growth will be higher than they expected, revised from 1.2 to 2 percent. While the opposite happened in 2023, growth is now estimated to be 1.6 percent, instead of 2.1 percent as expected.

As we’ve always told you in the field, these top averages don’t always reflect what’s happening in different areas of the economy.

It is possible that the indicators of productive investment will not improve significantly and that the movement of the economy will continue to be explained mainly by what happens to consumption and exports.

In this way, it is likely, for example, that construction will continue to look like a brake, while sectors associated with the production and distribution of consumer goods will perform better, the same will happen even with export sectors, although, of course, they will slow down If the US economy slows down.

For example, in the first five months of the year, industrial exports grew by 16.7 percent, a move that will be difficult to maintain for the rest of the year.

But, even if his pace was cut in half, he would be a very good performer.

For now, there is no recession in sight in Mexico.

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