Tuesday, April 23, 2024

Mexico could follow US into recession in 2023: Bloomberg

The old adage, “When the United States sneezes, the world catches a cold,” appears to still have currency today – and Mexico’s proximity to and interconnectedness with the world’s largest economy could make its own economy especially vulnerable to contagion.

Bloomberg reported Monday that “a near-certain U.S. recession” in 2023 “will likely pull Mexico’s economy into a contraction.”

The news agency said that Bloomberg Economics models show a 100% probability that the U.S. economy will go into recession during the next year due to the Federal Reserve’s sharp interest rate hikes as it attempts to tame inflation. 

According to Bloomberg Latin America economist Felipe Hernández, Mexico’s economy is likely to “steadily lose momentum before falling” into recession in the second half of next year. 

Bloomberg Latin America economist Felipe Hernandez
Bloomberg Latin America economist Felipe Hernández. Bloomberg

However, Hernández doesn’t anticipate Mexico being in the doldrums for too long. “After a short, shallow recession, growth would quickly rebound in 2024,” he wrote in an article for Bloomberg Professional Service subscribers. 

That said, a recession in the United States would be a “meaningful shock” for Mexico, the economist said. “The U.S. recovery from the pandemic has been one of the few growth drivers for Mexico since the outbreak,” Hernández wrote. 

Bloomberg noted that the Mexican economy became more dependent on the U.S. economy during the pandemic as President López Obrador – in contrast with many leaders around the world – didn’t increase spending to support the economy during the downturn. 

GDP plummeted by more than 8% in 2020 as Mexico endured one of the world’s worst coronavirus outbreaks, even though economic restrictions here were looser than those in many other countries. 

Hernández said that Mexico’s recovery has depended heavily on demand from consumers north of the border and foreign companies that operate here due to the ease of tapping into the U.S. market. That demand would suffer from a downturn in the U.S., and Mexican workers in that country would send less money home, he wrote. 

Remittances are a major source of income for many Mexican families, and López Obrador often describes migrants who support their loved ones at home as “heroes.” 

While Bloomberg’s models are predicting a recession in the U.S., three Bloomberg economists including Hernández acknowledged they could be wrong. 

For his part, President Joe Biden said last week that he wasn’t anticipating a recession, but if there is one it will be “very slight.”

In Mexico, López Obrador remains upbeat about the state of the economy, saying Tuesday that the country has “economic stability” and that GDP is equivalent to that of Spain. 

Mexico has the world’s 15th biggest economy with GDP reaching almost US $1.3 trillion last year, according to data compiled by Investopedia

The World Bank is more optimistic than Bloomberg about the prospects of the Mexican economy in 2023, forecasting growth of 1.5%, even though the Bank of México has responded to high inflation here – 8.7% in September – with three successive interest rate hikes of 0.75%.   

With reports from Bloomberg 

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