Fitch Ratings increased its forecast for approx Economic gain for Mexico from 2.5 to 3.1 percent 2023 This is against the background of better labor market developments and the expected investment potential in company relocations (Nearshoring).
The rating agency assured that the 0.8 percent increase in the second quarter of the year “far exceeded” its expectations and half-year growth of 3.6 percent was possible.
“Growth has benefited from robust consumption driven by strong growth labour market and an unexpectedly strong increase in the private sector as well as recent investment and financial policy announcements were also positive,” he said.
Fitch added that the private investment has grown significantly in the last two quarters with an average of 13.5 percent, particularly in non-residential construction and in machinery and equipment.
“This indicates an increase in demand for Mexican manufacturing production due to relocation. “We expect nearshoring to be an important growth opportunity for Mexico over the next three to five years, depending on how the announced investment projects are implemented and how imports to the United States increase,” he said.
The rating agency expects growth of 1.4 percent by 2024 while the gross domestic product (GDP) can reach 2.3 percent by 2025.
He emphasized that annual inflation continues to fall, reaching 4.6 percent in August 2023 after peaking at 8.7 percent in September 2022; However, he acknowledged that inflation remains high, partly due to the high prices of processed foods.
“We expect inflation to continue to decline gradually, supported by the lagged impact of previous monetary policy tightening,” the global economic outlook update said.
In this sense, Fitch estimated that the Bank of Mexico (Banxico) will keep its interest rate at 11.25 percent until early 2024 and then cut it “with relative caution” as the central bank’s board stressed the need to maintain a high policy rate for an extended period to ensure inflation convergence with the target .
Banxico has a target range for inflation of 3 percent +/- one percentage point, but the ratings agency expects the cycle of lower interest rates in Mexico to begin before the U.S. Federal Reserve (FED) decide to shorten the indicator.
