【Ferro-alloys.com】:Mexico’s economy is expected to be affected by economic problems in the US, even though Washington’s debt ceiling agreement averted a bigger disaster.

Although the deal, approved by the US senate on June 1, stabilized financial markets with positive effects for the peso, doubts about mid-sized US banks remain, which could still lead to recession and affect Mexico because it is a major trade partner, CI Banco's deputy director of economic analysis, James Salazar, told BNamericas.

“The fact that there was no [debt ceiling] agreement expected led to the possibility of a recession. This factor has dissipated or is eliminated, but the risk of recession remains, because the reality is that behind this [economic] outlook is restrictive monetary policy, a rapid rise in interest rates and doubts regarding regional banking,” Salazar said.

Mexico’s central bank also highlighted the risks of exposure to the US in its quarterly report published May 31 and revised its 2024 growth projection from 1.8% to 1.6% “as a consequence of a deterioration in the forecast of growth of industrial production in the US.”

It added, “a slowdown in economic activity in Mexico continues to be anticipated as of the second quarter of 2023 due to the complex external environment that persists.”

For this year, however, the monetary authority forecasts 2.3% growth, compared to 1.6% in the previous report, on the back of strong economic resilience.

Recent difficulties experienced by US and European financial institutions have not impacted the national financial markets or the inflationary outlook, the report said.

However, "the vulnerabilities detected in the external banking system add another dimension of complexity to an environment that is already complicated, which is still affected by the pandemic and the war in Ukraine."

Salazar said, “There is still a possibility of recession. That is why in most of the estimates by those of us who think it could occur toward the end of this year, adjustments are expected for 2023. And those who believe [the recession] will be delayed until 2024, expect adjustments to economic activity to be noticed more in next year's forecasts.”

The central bank's May survey among private sector analysts revealed that the 2024 GDP outlook remained at April levels, although the median declined to 1.6% from 1.7%. For this year, the analysts now forecast 2.05% growth, compared to 1.68% in April.

In early April, the IMF projected 2023 growth of 1.8%, after registering 3.1% in 2022 and 1.6% for 2024.

• [Editor:Alakay]