Monday, August 8, 2022

Mexico won’t survive recession in 2023: Moody’s Analytics

According to Moody’s Analytics, a global recession appears imminent, so Mexico won’t be able to avoid it until the middle of next year and will have to deal with a new contraction and higher levels of gross domestic product (GDP). inflation.

According to a report of the organization, the fear of recession in the world has increased in the next 12 months.

The United States, a neighboring country to Mexico and with which it has high business ties, is the one that has triggered an alert in recent weeks as financial conditions tighten, affecting the behavior of companies, consumers, savers . and investors..

The Mexican economy faces a combination of adverse events: the continuation of supply shocks in the global economy, high raw material prices, and weakening of domestic demand due to the need for more monetary sanctions to bring down high inflation. Analysis by Alfredo Coutino, director of Latin America at Moody’s Analytics.

For this reason, he estimates the recession in Mexico will begin in the middle of next year, and last for about three quarters. In that sense, although gross domestic product (GDP) is expected to grow at 1.8% this year, it will almost completely reverse in 2023, as Moody’s Analytics expects the economy to contract by 1.7 percent.

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The estimate is that, from the second to fourth quarter of 2023, the Mexican economy accumulates a contraction of 3.4%, which is higher than the 2.1 percent reported by the United States.

“This decline in the Mexican economy is consistent with the historical elasticity reported in recent crises and the interdependence of the economic cycles of the two countries,” Moody’s Analytics said.

It will not be until the first quarter of 2024 – the final year of the government of Andrés Manuel López Obrador – when the Mexican economy comes out of recession.

As such, his six-year term would be marked by three years in which GDP would have fallen: in 2019, with a contraction of 0.1%; in 2020, when the COVID-19 crisis shrank the Mexican economy by 8.5%; And next year.

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Banksico will continue to tighten monetary policy

Alfredo Coutino explained that, given the persistence of inflationary pressures, the Bank of Mexico (Banxico) would continue to tighten its monetary policy “beyond neutral”, which would reduce domestic demand, and thus lose the economy’s dynamism. .

In this vein, Victoria Rodriguez Ceja’s charge, Banksico’s interest rate, will reach an unseen level in mid-2023, when the economy enters a recession.

It currently stands at 7.75%, but is projected to rise by at least half a point at the next monetary policy meeting on August 11.

Given these conditions, Moody’s Analytics also expects the unemployment rate to rise from the end of this year, reaching a peak in 2023, as the economy loses steam.

“Families’ incomes will suffer a double blow, one due to the reduction in purchasing power generated by inflation, and the other due to the loss of jobs,” he said.

ana.martinez@eleconomista.mx

Nation World News Desk
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