Mexican Growth Revised Down to 2.8% in 2022 on Mounting Headwinds

• Mexican growth will slow in 2022 as higher inflation, decelerating US growth, the spread of the Omicron variant, and an unfavourable policy environment constrain activity. Fitch highlighted that Inflation is expected to average 5.9% in 2022, eating away at household purchasing power. The high inflation has also pushed the Banco de México (Banxico) into a tightening cycle, which will increase the cost of consumer loans over the year. 
• Nevertheless, economic activity will recover from the contraction recorded in Q321, as fiscal spending ticks higher, supply chain disruptions slowly ease and Mexico’s vaccination rate rises. Mexico has seen modest case levels since a surge in Q321, due in part to a vaccination rate that has climbed above 60%. 
• According to Fitch, real GDP growth is expected to slow to 2.8% in 2022, down from the 3.3% previously forecasted, and an estimated 5.6% in 2021, though this remains above the 2.0% growth averaged from 2015-19. 
• This downward revision is due to softer demand from the US, rising interest rates, and uncertainty over policy direction, coupled with a more challenging outlook for private consumption, which is expected to slow to 3.0%, from an estimated 7.4% in 2021, as higher inflation and weaker remittance inflows undercut household spending.

(Source: Fitch Solutions)