Economics: Internal demand, external conditions foreshadow a weaker economy in 2023

MEXICO - Report 17 Jan 2023 by Mauricio González and Francisco González

When it turned out late last year that Mexico’s GDP had accelerated in the third quarter of 2022 more than expected by either market analysts or government authorities, it prompted analysts, including those of us at GEA, to announce upward revisions to 2022 year-end GDP estimates. As we begin the new year, and try to anticipate the economy’s current trajectory, it is useful to analyze how aggregate demand components performed through the first nine months of last year in order to determine to what extent the 3Q22 rate of expansion is sustainable, which components explain the added momentum and which of them experienced only a situational increase that is unlikely to survive into the coming months. Such dynamics will be decisive for the direction of the Mexican economy in 2023, particularly regarding internal demand components (consumption and investment), while those of external demand (exports) are expected to slow during this year as a result of the anticipated slowing of activity in the United States and in the rest of the world, a scenario that could include a recession in major economies.

While the evolution of aggregate demand components in 3Q22 improved in line with other economic activity indicators such as imports and, to a lesser extent, domestic production, those numbers were somewhat inflated by a seasonal surge in public consumption and investment. We must also draw on more timely indicators that show consumer spending flattened in October and November despite the traditional boost of mid November’s "Buen Fin” annual nationwide shopping weekend event.

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