Domestic consumption, favored by a “gradual improvement” in the labor market, will be the engine of growth, while services related to tourism will gradually recover. Exports will benefit from a “deep” integration of value chains, says the OECD Economic Outlook for June released on Wednesday.
“If Covid infections increase, mobility could decrease, hindering economic activity. Episodes of financial volatility could increase risk aversion, reduce the arrival of net financial flows and increase financing costs. On the positive side, the opportunities provided by the nearshoring could lead to an increase in exports. The recovery of tourism could be faster than expected,” says the OECD.
The war in Ukraine caused geopolitical instability, which translates into a new source of uncertainty for the Mexican economy, adds the agency.
Although Mexico does not have major commercial ties with Russia or Ukraine, “national exports will be affected indirectly, mainly through the US economy,” he warns.
“Tax reduction measures and generalized tax credits are cushioning the impact of rising energy prices. Rising interest rates in global financial markets will increase Mexico’s sovereign financing costs,” he added.
Regarding the increase in the price of products and services, the OECD expects the indicator to remain high “for longer”, punishing the purchasing power of Mexicans, particularly “of vulnerable families”.
Banco de México (Banxico) anticipates that inflation will converge to the 3% goal until the first quarter of 2024. The national consumer price index stood at 7.27% in the first quarter of the year and at 7.7% at the annual rate in April, figures not seen in 20 years, according to the central bank’s January-March 2022 quarterly report.
The central bank interest rate is 7% and is expected to reach 9% in the first quarter of 2023, the OECD document states.
On investment and productivity issues, the international organization calls on the Mexican government to improve the regulation that applies to companies, “reducing the administrative burdens and the monetary costs of creating and formalizing a company.”
The foregoing, adds the OECD, would contribute to increasing investment and creating more formal jobs.
In April of this year, of the 59.5 million people that make up the economically active population (PEA) -people between the ages of 15 and more willing to work- 57.5 million were employed, of which 32 million work informally, according to with figures from the National Survey of Occupation and Employment (ENOE) of the Inegi.
He called for guaranteeing the independence of regulatory bodies and competition authorities; as well as sufficient resources to carry out their tasks.