Q122 Real GDP Data Underlines Slow Growth Recovery In Mexico

• Fitch maintains their 2022 real GDP growth forecast for Mexico at 1.8%, as Q1 2022 preliminary data showed only a slow recovery from a weak performance in H2 2021.  
• The Q1 2022 data, however; is generally in line with the Agency’s view that the Mexican growth will struggle to gain momentum in 2022, weighed down by high inflation, rising interest rates, and relatively weak investor confidence. As such, inflation is expected to average 7.2% y-o-y in 2022, the highest level since 2000, as higher commodity prices due to the war in Ukraine compound pre-existing price pressures. 
• Further, higher price growth will eat away at household income and reduce consumer confidence. That said, after 250 basis points worth of rate hikes since June 2021, the Banco de México (Banxico) will likely respond with additional monetary tightening, which will weigh on lending. 
• Fitch anticipates investor confidence will remain subdued, given concerns about policy direction under President Andrés Manuel López Obrador (AMLO), compounding the impact of higher borrowing costs on investment. 
• Notably, high inflation and interest rates, weak investor sentiment, and somewhat weaker US demand for exports will cap growth in the quarters ahead. However; a number of factors including strong remittances, the ongoing re-opening from the pandemic, and increased crude exports will prevent a steeper decline in growth.

(Source: Fitch Solutions)