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Moody’s maintains 2.2% growth outlook for Mexico’s economy in 2024

Moody’s maintains 2.2% growth outlook for Mexico’s economy in 2024

The agency Moody’s Investors Service this Friday maintained its growth estimate for the economy of Mexico at 2.2% by 2024, driven by strong domestic demand and the phenomenon of company relocation or ‘nearshoring’.

In its latest global outlook 2024-25 in February, the rating agency warned that growth in G-20 economies will stabilize at modestly lower levels this year.

Specifically, Mexico expected that gross domestic product (GDP) growth and inflation will remain firm amid solid domestic demand and favorable winds for the ‘nearshoring’.

Moody’s highlighted that the economy in 2023 expanded by 3.2%above the average of 1.8% between 2000-2019, although less than the growth of 3.9% in 2022.

By 2025, Moody’s expected a slowdown to a 2%. “While solid and resilient US growth played a supporting role, the enormous performance of the Mexican economy in 2023 was mainly driven by strong domestic demand,” he added.

The rating agency considered that the factors that triggered domestic consumption in a 4% annual were the low unemployment and the solid growth of the real wages of formal workers.

He added that U.S. policy incentives, the relocation of North American supply chains, especially for semiconductor and battery manufacturing, spurred growth trends. ‘nearshoring’ and fueled an investment boom.

In this sense, he highlighted investments in non-residential construction, which he estimated grew more than 35% last year, the highest rate since the 1990s.

However, he specified, structural deficiencies related to infrastructure, public policy obstacles and water scarcity in industrial centers adjacent to the United States will prevent all the potential benefits of nearshoring from being realized.

Likewise, he estimated that general inflation will close 2024 in 4.2%still above the target of 3% from the Bank of Mexico (Banxico), while growth, real wage gains and election-related spending will maintain underlying inflationary pressures this year.

Annual headline and underlying inflation reached 4.9% and the 4.8% in January, respectively, he recalled.

Meanwhile, Moody’s expected the Mexican central bank to maintain a restrictive stance on the current interest rate in the 11.2%until inflation enters the target range of between 2% and a 4%as well as the United States Federal Reserve beginning to make its rates more flexible.

Lastly, he considered “unlikely” that important changes will occur in policies, if the ruling party Claudia Sheinbaum, who leads the preferences, wins the presidential elections on June 2.

“However, the maneuverability of the next administration will depend on the composition of Congress and will likely be limited by a weakening fiscal position.”he concluded.

Source: Gestion

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