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Mexico’s central bank cut its growth projections for 2023, citing geopolitical uncertainty and a slowdown in the U.S. economy, Mexico’s main export market.

“We are facing a very complex environment,” Governor Victoria Rodríguez Ceja said Wednesday during a presentation of the bank’s quarterly report, in which she cut her growth projection for 2023 from 2.4% to 1, 6%. The bank maintained its growth estimate of 2.2% for 2022.

The report warns that the Mexican economy faces risks from neighboring countries, including “a slowdown in growth in the US economy and in industrial activity”, reducing external demand. Mexico sends about 80% of its exports to the United States.

Banxico also said the possibility of trade disputes with the United States and Canada under the USMCA trade treaty “introduces a new factor of uncertainty and risk that could affect investment decisions in the country.”

The United States and Canada have requested dispute settlement consultations with Mexico over Mexican policies, which they say have undermined renewable energy investment.

A weakening global economy, high global inflation and fallout from the war in Ukraine are other economic risks Mexico could face, according to the report.

The Bank of Mexico raised its benchmark interest rate by three-quarters of a percentage point to 8.5% on August 11, as inflation hit a 21-year high.

The bank expects inflation of 8.1% in the fourth quarter of 2022 and a decline throughout 2023.

“We believe Banxico will still maintain a pace of aggressive rate hikes given the continued upside inflation surprises,” Intercam Banco said in a Wednesday note. “The continued upward adjustment in local expectations and Fed moves could keep them in a cycle of rate hikes through year-end, bringing the target rate down to at least 9.5% .”

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