Wednesday, November 30, 2022

Moody’s predicts Mexico will be unable to avoid recession next year

The Mexican economy will likely fall into recession next year, according to economic research firm Moody’s Analytics.

Alfredo Coutiño, the company’s head of Latin America research, believes there is a growing probability that the global economy will enter a recession in the next 12 months and that Mexico will be unable to avoid suffering the same fate.

“Given the increasing probability of a global recession within the next 12 months, Mexico would be unable to avoid an economic contraction caused by a recession in the United States,” he said.

In a report, Coutiño set out a global recession scenario in which a contraction begins here in the second quarter of 2023 and lasts for a total of three quarters. In the scenario, he anticipated that GDP will shrink 1.7% in the next calendar year, after growth of 1.8% in 2022. The contraction between the second and fourth quarters of 2023 would be 3.4%.

Coutiño’s report said the Mexican economy faces a combination of unfavorable events, including the persistence of supply shocks in the global economy, high prices for raw materials and weakening of domestic demand amid the necessity to raise interest rates to combat high inflation.

In the anticipated recession, Mexican families would suffer both from a decline in their purchasing power due to high inflation and higher unemployment, according to Coutiño.

His report envisioned Mexico coming out of recession in unison with the United States in the first quarter of 2024 and an ongoing recovery in 2025 as the U.S. economy strengthens. In the scenario, a reduction in unemployment would quicken in 2025,  and inflation would drop to the central bank’s target rate of 3% in the middle of that year.

Although Moody’s Analytics anticipates a recession in the United States, the U.S. government is downplaying that possibility. “We’re not going to be in a recession, in my view,” U.S. President Joe Biden told reporters Monday.

“The unemployment rate is still one of the lowest we’ve had in history. It’s in the 3.6% area. We still find ourselves, the people, investing. My hope is we go from this rapid growth to a steady growth. And so, we’ll see some coming down. But I don’t think we’re going to, God willing, I don’t think we’re going to see a recession,” he said.

If Mexico’s economy does suffer a recession next year, it will be the third time that an annual contraction is recorded during President López Obrador’s six-year term. The COVID-19 pandemic and associated restrictions caused GDP to plummet 8.5% in 2020, while there was a 0.1% contraction in 2019.

With reports from El Financiero, Reforma, El Economista and CNN

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