Recently, the United States and Canada requested dispute settlement consultations with Mexico under the United States-Mexico-Canada Agreement (USMCA). 8 Additionally, fiscal prospects could be affected by lower financial buffers as fiscal stabilization funds have been virtually depleted-fiscal stabilization funds went from 1.6% of GDP in 2018 to 0.2% in the third quarter of 2022.Ĭertain domestic policy decisions focused on restricting private participation and expanding the role of the state in certain economic activities, such as energy and mining, represent other downside risks to growth prospects. The market consensus for Mexico’s economic growth in 2023 currently is merely 1%.Ĭovering social spending with cyclical, rather than new structural, revenue sources will lead to fiscal pressure afterward. Also, the expected tax collection is based on the possibility that the economy will expand 3% in 2023, something that seems difficult to achieve at this stage. The goal will likely be accomplished with higher-than-expected revenues, which will come mainly from higher oil revenues and anti-evasion efforts. 7 The budget continues to favor fiscal austerity, aiming to deliver a largely balanced primary budget of 0.1% of the GDP for this year and a small deficit of 0.2% for 2023 (figure 3). The Mexican policymakers recently approved the 2023 budget criteria, where they also refreshed the outlook for 2022. Continuing with the austerity pledgeĪlthough austerity measures are serving Mexico well in a postpandemic world where countries face higher debt and interest burdens, 6 the administration’s policy priorities and its optimistic economic growth forecasts for 2023 are concerning. On the upside, manufacturing activity and foreign investment could accelerate in the wake of nearshoring. 4) The expected slowdown in the United States 5 will weigh heavily on Mexico, given the strong trade and investment links between the two countries. 3) Mexican policymakers will continue to favor fiscal austerity, which will do little to catapult growth. 2) Interest rates will remain high, putting pressure on borrowing costs and dampening private sector credit. Our main assumptions for 2023 are as follows: 1) Inflation will continue its downward trend but will remain above 4% throughout the year, eroding households’ purchasing power and lifting input costs for businesses. However, we forecast a slowdown to hit the Mexican economy next year, with growth expected to slip down to 1.5%. We estimate an annual growth of 2.6% for this year (up from 2.1% anticipated previously). Although there are signs of a deceleration as we approach the end of the year, things are looking a bit brighter than previously expected.
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