Fitch Ratings and the UN Economic Commission for Latin America and the Caribbean (ECLAC or Cepal in Spanish) updated their 2023 economic growth forecasts for Mexico on Friday.
Fitch forecast a growth of 1.4% next year, while ECLAC forecast a growth rate of 1.1%.
Fitch warned that “high inflation could derail the solid consumption performance if it persists at current levels, affecting the context already weakened by sluggish investment.”
“Controlling inflation is proving more difficult than expected as price pressures broaden and take hold. We know it will not be good for growth but it is clear that central bankers are required to take off their gloves and keep doing what they have to do.”
The Bank of México (Banxico) raised the interest rate by 50 basis points to 10.5% on Wednesday.
While the ratings agency determined that private investment in Mexico is close to pre-pandemic levels, it is still 10% lower than its previous high in July 2018. The lag is at least partially related to low business confidence due to regulatory uncertainty, particularly in the energy sector.
This is the first time ECLAC has presented a specific growth expectation for 2023. Its estimate is lower not only than Fitch’s, but also below the International Monetary Fund (IMF)’s forecast of 1.2%, and well below the estimates by both the Organization for Economic Cooperation and Development (OECD) and Banxico of 1.6% and 1.8%, respectively.
“A growth of 1.1% for 2023 is positive, but low,” the head of ECLAC’s Economic Development Division Daniel Titelman said during a preliminary presentation on the Latin American and Caribbean economies.
The executive secretary of ECLAC, José Manuel Salazar, noted that the 2023 growth projections represent a “return to normality” following the post-2020 economic shock and subsequent economic growth rebounds in 2021 and 2022.
In terms of annual GDP growth for 2022, ECLAC estimates 2.9%, up one point from its previous estimate of 1.9%. Fitch estimates GDP growth for this year will come in at 3%.
“In 2023, unfortunately, we are returning to our normal. That is why we insist on so many structural changes, that is we have insisted that [Latin American and Caribbean countries] work on the issues of inequality, growth, the educational gap, on attracting investment,” Salazar said.
Mexico’s growth is heavily linked to the US’s economic processes, which is also expected to see a slowdown in 2023.
Nearshoring could provide an opportunity for economic growth given increasing tension between the US and China and the need to make strained supply chains more resilient, Fitch emphasized.
