The OECD adds that investment will benefit from smoother functioning of global value chains and the relocation of manufacturing activity to Mexico. However, the growth of exports will be held back by the economic slowdown in the United States.
He added that construction is still more than 10% below its pre-pandemic level, and that the unemployment rate is historically low and labor market participation continues to rise.
inflation will lose strength
The OECD projected that inflation will fall to 5.9% in 2023 and 3.7% in 2024. “Inflation will slow down little by little in 2023 and 2024, as the impact of Banxico’s interest rate hike takes effect and they fall external pressures. However, the prospects remain very uncertain, ”he considered.
He explained that inflation could prove more persistent than expected if, for example, a spiral of prices and wages materializes.
“Global financial stress may trigger further risk aversion and increase funding costs and currency market volatility. On the plus side, if global value chains rebuild faster than anticipated, further investment growth could be achieved,” he warned.
Fiscal stimuli for gasoline will continue
He considered that as inflation recedes, the end of fiscal aid aimed at mitigating the impact of high energy prices will offer greater fiscal space to increase spending on education and infrastructure.
“We assume this mechanism will remain in place through 2023 and 2024. Increased oil revenues covered the cost of this stabilization mechanism in 2022. However, if global fuel price variations were allowed to impact retail prices national, these variations would serve as an incentive for energy savings and would provide a greater fiscal margin to reinforce social programs or spending on education”, commented the OECD.
money will remain expensive
While he suggested that monetary policy should remain tight to ensure that inflation declines steadily towards its target. Greater certainty in the regulatory sphere, including in the energy sector, would help to take full advantage of the current transfer of production processes to Mexico.
“It is assumed that the official interest rate will remain unchanged until the end of 2023, when it would begin to be reduced little by little,” he concluded.
