BofA lowers 2023 forecast for Mexico economy, cites potential recession

Bank of America has downgraded its 2023 growth forecast for Mexico’s economy to 0% from 1% amid a potential U.S downturn, analysts said in a research note, predicting the country will reach the brink of recession.

The Mexican economy has struggled to regain pace since pandemic restrictions have eased, while future growth prospects have been hit by higher interest rates and soaring inflation.

However, the Bank of America (BofA) note is among the most bearish forecasts on Mexico’s 2023 outlook to date.

A poll from the country’s central bank recently put growth forecasts for 2023 at 1.6%, down from 1.9%, while the OECD said it expected Mexico’s gross domestic product to grow 2.6% in 2023.

The IMF recently cut its forecasts for Mexico’s growth next year to 1.2%.

Mexico’s President Andres Manuel Lopez Obrador said last month he was optimistic about the economy and ruled out a recession next year, despite a gloomier outlook for the global economy.

“We expect the Mexican economy to decelerate sharply in the following quarters,” BofA’s note said earlier this week.

“We think the main driver will be the U.S. deceleration, in part driven by higher interest rates, which we expect to impact Mexico with a lag.”

They also flagged the current dispute over the US-Mexico-Canada Agreement (USMCA), which accuses Mexico of a energy-related breach, as a downside domestic risk.

BofA now predicts 2022 growth of 1.9%, up from 1.7%.

Nonetheless, analysts noted that a boost in re-shoring and a continued uptick in remittances to Mexico could help “cushion” the growth slump next year.