Bank of America forecasts zero growth for Mexico in 2023

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Bank of America (BofA) has lowered its 2023 growth forecast for the Mexican economy from 1% to 0%, predicting that GDP will stagnate as the United States economy slows.

In a note published Wednesday, the bank predicted that an economic deceleration in the United States, “in part driven by higher interest rates,” would be the main driver of a slowdown that would put Mexico on the brink of recession.

It said the fortunes of the United States and Mexican economies have historically risen and fallen together and that it expects that a U.S. slowdown will extend to Mexico “with a lag.”

BofA predicted that internal factors will also contribute to a slowdown here, specifically citing higher interest rates, tight fiscal policy and renewed uncertainty generated by the energy dispute between Mexico and its North American trade partners.

The central bank raised its benchmark interest rate by 75 basis points to 7.75%  in June and is expected to lift its key rate again next week as it attempts to tame inflation that rose above 8% in the first half of July. BofA predicts that the benchmark rate will be 9.5% at the end of the year and remain at that level through 2023.

The energy dispute precipitated by federal government policies that favor the Federal Electricity Commission and state oil company Pemex over private and foreign firms intensified in late July when both the United States and Canada launched challenges under USMCA, the three-way North American trade pact.

BofA said the formal dispute resolution process requested by the U.S. and Canada due to Mexico’s “nationalist energy policies” would take “many months” and could result in the imposition of tariffs on Mexican exports. Uncertainty about the potential tariffs dissuades investment in Mexico, it said.

Source: Expansión

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