Narrowing Trade Deficit, Strong Remittance Inflows to Shrink Mexico's Current Account Deficit In 2022
- Mexico’s current account deficit is expected to narrow to 0.1% of GDP in 2022, from 0.4% in 2021, as the goods and services trade deficit shrinks and robust remittance inflows expand the secondary income surplus.
- Fitch Solutions expects that Mexico will run modest current account deficits in the medium term, averaging 0.5% of GDP, which will likely be covered by capital inflows. Additionally, stronger export growth relative to imports will narrow the goods and services trade deficit to 0.7% of GDP in 2022, from 0.9% in 2021. Furthermore, continued growth is expected in non-oil goods and services exports in the remainder of the year, fuelled by demand from the US.
- Although there has been a revision in the US growth forecast for 2022 from 3.5% to 3.1%, it remains above the pre-pandemic trend, suggesting that US demand for Mexican manufacturing exports – which fuelled 18.6% growth in goods exports in 2021 - will remain relatively robust. Continued US growth will also drive increased tourism flows to Mexico, continuing the recovery in services exports, while a strong US labour market drives robust remittance flows to Mexico.
- Notably, higher crude oil prices and demand from the US will underpin 5.8% of growth in exports in 2022. Mexico’s net crude oil exports are expected to increase to 16.2% in 2022, as production rises slightly and global prices remain elevated following Russia’s invasion of Ukraine in February 2022.This will however be tempered by the expected 4.9% growth in imports in 2022.
- Mexico’s reliance on imports of refined fuels makes it a net energy importer, and as a result of higher global energy prices, the cost of imports will increase. However, it is anticipated that non-oil imports will be more modest due to elevated inflation and rising interest rates. This will slow demand for consumer and capital imports, offsetting some of the increase in energy imports.
(Source: Fitch Solutions)