Mexico Could Fall into Recession Alongside US in 2023: Bloomberg Economics

Bloomberg — A near-certain US recession next year will likely pull Mexico’s economy into a contraction, Bloomberg Economics’ models show.

Bloomberg’s models give a 100% probability of the US falling into recession in the next 12 months, as it’s “tough to imagine” the Federal Reserve taming inflation without causing a contraction, Bloomberg US economists Eliza Winger and Anna Wong wrote Monday. In those circumstances, Mexico’s economy “should steadily lose momentum before falling” in the second half of 2023, Bloomberg Latin America economist Felipe Hernandez wrote last week.

For Mexico, “after a short, shallow recession, growth would quickly rebound in 2024,” Hernandez wrote. The US models don’t account for the size of the slowdown, but President Joe Biden’s prediction that “any recession will be ‘very slight’ might end up being correct,” Winger and Wong write. There’s no guarantee that the models will be correct, the three economists noted.

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Mexico has grown more dependent on the US during the pandemic, as President Andres Manuel Lopez Obrador declined to boost spending to shore up the economy. As such, its recovery has relied heavily on demand from US consumers and foreign companies that invest in Mexico with the aim of servicing the US. Both those factors would be hobbled by the US economy falling, Hernandez writes -- as would the reams of remittances sent home by US-based Mexicans that have helped keep the country afloat.

“A recession in the US would be a meaningful shock. The US recovery from the pandemic has been one of the few growth drivers for Mexico since the outbreak,” Hernandez wrote.

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