Remittances and investment in Mexico will suffer from a US economic recession

Jesica Roldan and Alejandro Saldaña, chief economist at Finamex Casa de Bolsa and Ve por Más (BX+), respectively; In addition to Hector Magana, Professor of Accounting and Finance at the Tecnológico de Monterrey Business School, they agree that among the main effects of a recession or economic slowdown in the United States, Mexico will see reduced imports into that country as well as lower amounts in remittances.

The peso-dollar exchange rate and investments will be other affected indicators, as the tightening of monetary policy of the Federal Reserve will make it more attractive to invest in dollars, which will boost the US currency against emerging currencies.

To face an eventual recession or slowdown in the US, Mexico and other emerging countries should strengthen macroeconomic fundamentals, reduce deficits and increase interest rates to provide a “cushion” against capital outflows, said Ernesto Rivella, chief Latin American economist for Latin America. City Group.

Mexico has good macroeconomic fundamentals, compared to other emerging countries, such as relatively low public debt, relatively low public deficit, high international reserves, flexible exchange rate, and credit line with the IMF. Preparations are in place, but that does not mean that the storm will not hit hard.”

Pneumonia?

In 2020, when the US economy contracted by 6.2%, Mexican GDP fell by 8.5% and has not yet recovered.

Another example: During the real estate crisis in 2009, the gross domestic product of the United States fell by 2.4% and Mexico reached 6.5%, according to the Bank of Mexico.

Imports and remittances

The increase in interest rates has an effect on consumption and financing, because credit becomes more expensive. In the face of lower consumption in the US, the demand for finished products will also fall, which means fewer imports.

For Mexico, which exports nearly 80% of its overseas sales to the United States, it will have a significant impact. “At a time when the US, particularly industrial production, is slowing, it will lead to a decline in external demand, which drives growth,” said Jessica Roldan of Finamex.

“Since the reopening, in the middle of 2020, we have seen that a very important component of growth for Mexico is external demand,” he added.