Tensions in Europe, inflation and climate, risks to Mexico’s GDP

Tensions in Europe, inflation and climate, risks to Mexico’s GDP

The war between Russia and Ukraine, the continuation of high inflation levels for longer than expected, and weather factors, as well as the possible slowdown of the economy in China, are factors that, if they occur or worsen, will have a negative impact on the growth of the Mexican economy this year, which is still Looking for a recovery after the Covid-19 crisis.

In the General Standards for Economic Policy (CGPE) 2023, the Ministry of Finance and Public Credit (SHCP) stated that in the face of the challenging scenario, the Gross Domestic Product (GDP) will see a specified growth of 2.4% this year, with a range of 1.9 to 2.9 percent.

โ€œOnly in the first half of the year did the economy register an expansion of 1.9% at an annual rate, by which it is calculated that if there is no further growth in the rest of the year, economic activity may show a positive variance of 2.0% annually, with seasonally adjusted numbers. However, The good economic dynamics is expected to continue,โ€ explained the agency responsible for Rogelio Ramirez de la O.

The Ministry of Finance expects in the remainder of the year that economic growth will be driven by employment performance and increased labor income, which will support domestic private consumption; Increasing the productive capacity and dynamism of the external sector, which will be reflected in industrial exports as well as income from remittances and tourism.

However, the Treasury Department discovered four factors that could play against the Mexican economy, the conflict emerged in Eastern Europe, which can reduce the dynamism of activity in Mexico, especially if more energy price volatility episodes are created, there is a shortage of energy. Fertilizer and/or food, less foreign investment.

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On the other hand, higher inflation levels for a longer period will also be a disadvantage, as tightening of monetary policy by various central banks will be needed to combat it.

Two other effects can come from weather factors, such as drought or floods, which can also affect consumer prices, as well as a slowdown in the Chinese economy due to structural problems in its economy.

America is underestimated

Despite fears of a slowdown in the economy of the United States, Mexico’s main trading partner, the Treasury has chosen not to consider it among the risks to the economy this year.

โ€œAlthough there are signs of an economic slowdown in the United States, our main trading partner, there is no conclusive evidence of a recession. This is mainly in the context of the strength of industrial production, the labor market and the growth of private consumption in the first half of the yearโ€ According to the Treasury Department.

James Salazar, deputy director of economic analysis at CIBanco, said the above could lead to an overestimation of public revenues, because if there was a slowdown in the neighboring country to the north, there would inevitably be an impact on the Mexican economy.

The US is also facing a period of high inflation, levels not seen in decades, which is why the Federal Reserve raised interest rates. There is a more pronounced effect that higher rates can have, particularly in the consumption part. The fact that the United States is losing strength is also important to the Mexican economy.โ€

The analyst added that other factors that could also affect growth are the issues that occur in the T-MEC, the uncertainty caused by some decisions of the Lopez Obrador government, as well as the Covid-19 pandemic, which continues to be so. never ends.

Services can be redeemed at the end of the year

The recovery of the economy in Mexico continues this year, especially in the service sector, which is the activity most affected during the Covid-19 epidemic, and although it recovered, it is lagging compared to the agriculture and livestock sectors. .

โ€œAs activities continue to normalize with pre-pandemic conditions, segments related to the internal market are expected to register significant progress, which will allow activities lagging behind in relation to pre-pandemic levels to close, and that gap and those that have already recovered continue to grow.โ€

In particular, the government has highlighted services related to temporary accommodation, as well as food and drink preparation, as the biggest losers during the pandemic due to confinement and social distancing measures.

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