Mexico’s Economy Exceeds Forecast While Facing Headwinds, Inflation

Latin America’s second-largest economy grew 3.1% in 2022, faces challenges ahead

Customers shop for vegetables at the Central de Abastos Market in Mexico City.
By Maya Averbuch
February 24, 2023 | 10:29 AM

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Bloomberg — Mexico’s economy grew slightly above a preliminary estimate in the fourth quarter, although activity is expected to keep slowing down in 2023 amid weakening US and domestic demand.

Latin America’s second-largest economy, heavily dependent upon profits generated by exports to the US, expanded 0.5% from the previous quarter, above the flash reading published last month, according to data released by the national statistics institute Friday. The result was also higher than the 0.4% median estimate of economists surveyed by Bloomberg.


Declining exports to the US, Mexico’s biggest trading partner, and a drop in the peso-value of remittances has curbed domestic consumption even though total dollar inflows from abroad hit a record in 2022, Gabriela Siller, director of economic analysis at Grupo Financiero Base, said.

“The peso strengthened, so there were fewer pesos for every dollar received, and inflation has been fairly high,” Siller said prior to publication of Friday’s report. “Consumption slowed precisely because of the lower purchasing power of the remittances and because of the fall in exports.”

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What Bloomberg Economics Says: “December data show Mexican activity has moderated its uptrend, consistent with our expectation for weaker growth in 2023. Resilient household consumption continues to provide support. Investment could be a surprise contributor going forward as companies relocate their global supply chains. An uncertain US outlook is a risk.” — Felipe Hernandez, Latin America economist

In comparison to the previous year, the economy grew 3.1% in all of 2022, above the prior estimate of 3%. On a quarterly basis, the services sector gained 0.1%, agriculture expanded 2% and manufacturing rose 0.5%.

Sticky Inflation

At the same time, sticky and above-target inflation has Mexico’s central bank engaged in a record rate-hiking campaign that’s also serving to slow economic growth.


A government report Thursday showed consumer prices rose 7.76% in the first two weeks of February from the same period a year earlier. That’s down from a third-quarter peak of 8.7% but still more than double the bank’s target of 3%, plus or minus 1 percentage point.

What’s more, the minutes of the bank’s February meeting released Thursday explicitly signaled that additional tightening from the current 11% can be expected, further squeezing output and demand in Latin America’s second-biggest economy.

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“Given that inflation is strong, that Banxico’s policy has been to raise rates for over a year and a half, and that since the middle of last year it already began to be restrictive, it makes sense that the demand in the private sector is starting to diminish,” said Joan Enric Domene Camacho, an economist at Oxford Economics.

Economists in a Citibanamex survey published this week raised their 2023 growth forecast to 1.10%, up from their prior 1.00% prediction. They also forecast that the central bank’s key rate would be 11.25% by the end of the year. Some economists predict that the bank could wait to cut rates until 2024.


--With assistance from Rafael Gayol