Strong Growth In Q322, But Mexico Still Headed For Major Slowdown Next Year

• Fitch revised its 2022 real GDP growth forecast for Mexico up from 2.0% to 2.7%, following a surprisingly robust Q3 2022 growth print. Growth in Q3 came in at 4.2% y-o-y (1.0% q-o-q in seasonally-adjusted terms), compared to a Bloomberg consensus of 3.3%. 
• With this print, the Mexican economy has now expanded 2.7% through the first three quarters compared to the same period in 2021. The outperformance was driven by resilient private consumption, despite high inflation, as well as strong exports. Goods exports hit an all-time high of USD52.3Bn in September, reflecting the strength of the manufacturing sector and demand from the US, which historically receives roughly 80% of Mexican exports.
• However, growth is expected to slow in Q4 2022 but remain robust at 2.9% as US demand remains solid. Inflation is anticipated to cool while private demand will be boosted by remittances, modest unemployment, and year-end sales.
• Growth will slow more sharply in 2023, to 1.0%, due to weaker demand from the US and elevated interest rates. The Agency forecasted growth in the US to slow from 1.6% in 2022 to 0.3% in 2023 as the US Federal Reserve tightens monetary policy, with the economy entering a minor recession in H2 2022. This will weigh heavily on Mexico’s manufacturing sector, which is highly reliant on US demand, and weaken remittance flows, undercutting private demand.

(Source: Fitch Solutions)