The Bank of Mexico is becoming more bullish on Mexico, once again raising economic projections for Mexico’s economy. In a sign of resilience set within a broader context of global uncertainty and sluggishness, economic data coming out of Mexico provide hope and optimism for the near future.
The nation’s central bank, Bank of Mexico (or Banxico), has recently released its quarterly report. In it, the national bank increased its economic growth forecast for 2023. Previously a cautious 2.3%, the new forecast is now 3%.
Although Banxico added that it expects Mexico to experience an economic downturn along with the US in the near future, current projections remain relatively optimistic. And while they will hold the country’s benchmark interest rate at its currently high levels to combat inflation, the bank slightly lowered its headline inflation forecast for the last quarter of 2023 to 4.6%, down from 4.7%.
Inflation remains a problem for many of the nations of the world, but Mexico’s central bank feels confident that current interest rates will help bring them down in Mexico eventually. And in the meantime, the economy continues to grow.
Over the previous few years, Mexico’s economy has displayed remarkable resilience, with several factors contributing to its positive trajectory.
Mexico’s strategic location and dynamic manufacturing sector have made it a preferred choice for businesses looking to diversify their supply chains. As the world seeks to mitigate supply chain vulnerabilities, Mexico’s role has become increasingly pivotal, boosting its economic stability.
Foreign investors are recognizing Mexico’s potential, resulting in a surge of foreign direct investment (FDI). This influx of capital not only strengthens Mexico’s economic foundations but also underscores its attractiveness as a destination for international business ventures.
Mexico’s commitment to poverty reduction is delivering tangible results, with a declining poverty rate contributing to social stability. This positive trend not only enhances the well-being of its citizens but also fosters a conducive environment for economic growth.
Another symptom that Mexico’s economy is resilient is the country’s declining poverty rate. Over the past four years, Mexico has reduced its poverty rate from 50% to 43.5%, largely attributed to a doubling of remittances from Mexican workers abroad, particularly in the US. This economic boost has improved access to education and healthcare, fostering social mobility and increased market demand.
Collaborative efforts between the government, non-profit organizations, and international partners have also played a crucial role in creating opportunities for marginalized communities, including vocational training for labor services.
While challenges persist, such as extreme poverty among the most vulnerable, the 6% reduction in overall poverty in just four years signals Mexico’s progress on the global economic stage.
Additionally, Mexico’s declining inflation rate, stable energy costs, and food prices bode well for its economy. The country’s cautious monetary policy and role as the US’s top trading partner in the North American supply chain contribute to its sustained growth prospects.
Mexico’s dedication to uplifting its lower classes aligns with its economic strategy, ensuring a skilled labor force for modern industry. Gradual labor cost increases provide predictability and profitability for investors, making Mexico an attractive destination for global businesses.
While 2023 data is looking good, there is reason to believe the future beyond this year is positive for Mexico’s economy, too. Banxico’s quarterly report also forecasted the country’s 2024 economic growth forecast to be 2.1%, up from 1.6%. In a clear signal of future resilience, Mexico’s central bank continues to upgrade forecasted growth, all while tempering this optimism with qualifiers about a potential, looming global downturn.
The quarterly report made special note about Mexico’s strong labor market and domestic spending as contributing to the economy’s resiliency. But it also cautioned that Mexico’s economy is “running hot,” and advised staying the course on the fight against inflation with a continued “conservative calibration of monetary policy.”
