Near-Term Mexican Outlook Brightens, But Growth To Slow As The Year Progresses

• Fitch Solutions has revised its forecast for Mexican real GDP growth in 2023, higher from 1.1% to 1.8%, which will come in the wake of a 3.1% expansion in 2022. The updated projections follow a string of stronger-than-expected data points in recent months, with the economy having ended 2022 on a better footing than anticipated.
• The economy grew by a solid 0.5% q-o-q in Q422, driven by a surge in fixed investment linked to the ‘near-shoring’ effect, given Mexico’s proximity to the USA and a pick-up in public sector capital expenditure.
• It is suspected that this strength will persist through much of H123 before activity eases sharply below trend in the second half of 2023 into 2024 as the US is expected to fall into recession.
• Notably, growth was underpinned by the ongoing boost from the US economy as Mexico has remained a key beneficiary of the US’ attempts to reduce its reliance on imports from Mainland China.
• Additionally, with the government racing to finish several flagship infrastructure projects ahead of the presidential elections planned for June 2024; the Mexican economy ended last year on a solid footing.
• Risks to Fitch’s forecasts are broadly balanced and largely hinge on the trajectory of US economic growth. In the event that the US avoids a recession, it is quite likely that the slowdown pencilled in for Mexico will fail to materialize as external demand and remittance flows remain robust.

(Source: Fitch Solutions)